Allied Office Product Case Study

Only available on StudyMode
  • Download(s) : 1165
  • Published : December 24, 2012
Open Document
Text Preview
Question 1
Activity Based Service Cost for the TFC business
Activity| Total Activity Cost ('000)| Activity Driver| Usage| Actual Cost| Storage| $ 1,550 | Number of Cartons| 350,000 | $ 4.43 | Requisition Handling| $ 1,801 | Number of Requisition| 310,000 | $ 5.81 | Basic Warehouse stock selection| $ 761 | Number of Requisition × 2.5 lines| 775,000 | $ 0.98 | "Pick-pack" activity| $ 734 | (Number of Requisition × 2.5) 90%| 697,500 | $ 1.05 | Data Entry| $ 612 | Number of Requisition × 2.5 lines| 775,000 | $ 0.79 | Desk top delivery| $ 250 | Number of Desk Top request| 8,500 | $ 29.41 | Total| $ 5,708 |  |  | $ 42.47 |

Question 2
Distribution Service Cost for Customer A and B
Activity|  | Customer A|  | Customer B|
Storage| 350 Cartons × $4.43| $ 1,550.50 | 700 Cartons × 4.43| $ 3,101.00 | Requisition Handling| 364 Req × $5.81| $ 2,114.84 | 790 Req × $5.81| $ 4,589.90 | Warehouse Activity| 910 Lines × $0.98| $ 891.80 | 2,500 Lines × $1.05| $ 2,625.00 | Additional "Pick-Pack" Charge| 910 pick-pack lines × $1.05| $ 955.50 | 2,500 pick-pack lines × $1.05| $ 2,625.00 | Data Entry| 910 Lines × $0.79| $ 718.90 | 2,500 Lines × $0.79| $ 1,975.00 | Desk Top Delivery| 0 times × $29.41| $ - | 26 times × $29.41| $ 764.66 | Freight Out (Actual)| -| $ 2,250.00 | -| $ 7,500.00 | Inventory Financing (Estimated WACC of 13%)| $15,000 inventory × 13%| $ 1,950.00| $50,000 inventory × 13%| $ 6,500.00 | Inactive Inventory Surcharge (A proxy for obsolete inventory cost borne by TFC)| $0 inventory × 1.5% × 3 mths| $ - | $7,000 inventory × 1.5% × 3 mths| $ 315.00 | Total Serveice Charges: ABC Method|  | $ 10,431.54 |  | $ 29,995.56 |

Question 3
Old Method| | |
| | Customer A| Customer B|
Sales| | $ 79,320 | $ 79,320 |
Product Cost| $ (50,000)| $ (50,000)|
Service Fees (32.2% of product cost)| $ (16,100)| $ (16,100)| Gross Profit| $ 13,220 | $ 13,220 |
Gross Profit (%)| 0.17 | 0.17 | | | | |
| | | |
Activity Based Analysis| |
| | Customer A | Customer B |
Sales| | $ 79,320 | $ 79,320 |
Product Cost| $ (50,000)| $ (50,000)|
Service Fees (per ABC)| $ (10,510)| $ (30,093)| Gross Profit| $ 18,810 | $ (773)|
Gross Profit (%)| 0.24 | (0.01)|

Customer A is now more profitable than Customer B and they are smaller source of potential growth for the company. They do not fit the business as TFC is unable to build a business around customers who does not use its services. Customer B now is less profitable however they are a heavy user of the services since they do not have to pay services offered by TFC. With the information obtain from the new ABC costing system, Allied should charge more to Customer B for the services rendered to them and charge less to company A for the less used of the services provided. Question 4

The implementation of SBP system would gradually be beneficial. Under this system, the company will be much more profitable and would be less exploited from the customers. TFC will charge services based on actual usage while leaving net sales and product cost the same as before. A slow and steady implementation would enable Allied to asses accurately if the new system is profitable. Under a SBP system, if the company chooses to discontinue a specific service, variable cost for that service will no longer be incurred. Though SBP...
tracking img