Activity-Based Costing and Customer Profitability Analysis
|5-1 |Blue Ridge Manufacturing (Activity-Based Costing for Marketing Channels) | |5-2 |Columbo Soft-Serve Frozen Yogurt: Using Activity Based Costing To Assess Channel/Customer Profitability | |5-3 |Wilson Electronics (A) | |5-4 |Wilson Electronics (B) | |5-5 |The Buckeye National Bank (ABC Costing in the Service Sector) | |5-6 |Precision Paint | |5-7 |Forest Hill Paper Company | | | |
5-1: “Activity-Based Costing and Predatory Pricing: The Case of the Petroleum Retail Industry” by Thomas L Burton and John B MacArthur, Management Accounting Quarterly, (Spring 2003).
The assignment of indirect costs in a volume-based costing system can lead to product-cost subsidization—overcost high-volume products and undercost low-volume products. Undercosted products can lead to the appearance of predatory pricing where it actually does not exist. This article focuses on a lawsuit brought against a major chain of retail motor fuel (gasoline) service centers for allegedly selling regular-grade gasoline below cost, as defined by state statutes. The defendant employed ABC analysis to support its position that it was not selling its regular gasoline below cost. After the ABC analysis was presented, the case was settled, and the judge lifted the initial injunction.
1. What are product-cost subsidizations?
2. What are possible consequences of product-cost subsidizations? 3.List alternative approaches to assign costs in a gasoline service center. 4.Identify cost hierarchy level groups in classifying activities at the retail level of a gasoline service center and give at least one example each. 5.What are overheads activity-cost pools pertaining to selling gasoline in a retail gasoline service center and what is the activity level for each of the cost pools? 6.Identify the activity drivers for overheads activity-cost pools identified in this study and explain the reasons for the selection? 7.List examples of gasoline-dispensing facilities for a gasoline service center and identify whether each of the facilities is a common or a gasoline grade-specific asset.
5-2: “Activity-Based Benchmarking and Process Management—Managing the Case of Cardiac Surgery” by Bea Chiang, Management Accounting Quarterly (Fall 2002).
Through a study of resource consumption, hospitals can get a more accurate picture of how practices are linked to cost.
1.Describe briefly hospital’s costing system.
2. Describe steps in activity-based benchmarking for medical-care processes.
5-3 “Using Activity Based Costing To Assess Channel/Customer Profitability” by DeWayne L. Searcy, PhD., CMA, CPA, Management Accounting Quarterly (Winter 2004).
This article explains how ABC was used by a firm (TEC) in the temporary employment industry to better identify the profitability of its service distribution channels and individual customers.
1. What are the four steps used in implementing ABC costing at TEC? 2. What are the activity consumption drivers that TEC has chosen for each of the three activities: filling work orders, hiring temporaries, and processing payroll? 3. Which customer channel is most profitable, clerical or industrial,...