Quiz 4: Bald Win Bicycles

Business

The ABC analysis: It is a business term used to define the categorization of inventory. This technique is generally used in material management. It is also recognized as Selective Inventory Control. Substitute: img img img img img img img By using the information in exhibit 2, service costs based on the ABC system is calculated as follows: img

Activity-based costing is the method to allocate costs to company's products and services. It is normally used as a device for control and planning. TFC (Total Forms Control) management called the ABC based pricing system SBP (Service Based Pricing) is a base price for the number of customers including a charge for extra services or meter points. Use a new costing system to calculate the distribution cost for "Customer A" and "Customer B" as follows: img • For basic warehouse stock delivery img • Pick pack required 90% of the lines, therefore img • These five distribution centers scattered across the country on an average, will have combined inventory of 350,000 cartons approximately. • 310,000 requisitions for year 1992 would be processed. • Each requisition will average 2.5 lines. • About 90 percent of the line would be required pick-pack activity. • In year 1992, cost of capital was probably about 13 percent. The calculation by using ABC system is made as follows: (a) img (b) img (c) img (d) img (e) img (f) img Total cost allocated for customer A and Customer B is calculated as follows: img (a) For Storage Cost: Storage costs are allocated for customer A and B using cartons of inventory kept by both. Activity cost driver rate for storage costs is $4.43 Customer A kept 350 cartons of inventory. So storage cost for customer A is img Customer B kept 700 cartons of inventory. So storage cost for customer B is img (b) For Requisition Handling : Requisition Handling costs are allocated for customer A and B using cartons of inventory kept by both. Activity cost driver rate for requisition handing costs is $5.81 Customer A kept 364 cartons of inventory. So requisition handling cost for customer A is img Customer B kept 790 cartons of inventory. So requisition handing cost for customer B is img (c) For Basic Warehouse : Basic Warehouse costs are allocated for customer A and B using cartons of inventory kept by both. Activity cost driver rate for basic warehouse costs is $0.98 Customer A kept 910 cartons of inventory. So basic warehouse cost for customer A is img Customer B kept 2,500 cartons of inventory. So basic warehouse cost for customer B is img (d) For Pick Pack : Pick Pack costs are allocated for customer A and B using cartons of inventory kept by both. Activity cost driver rate for Pick pack costs is $1.05 Customer A kept 910 cartons of inventory. So pick pack cost for customer A is img Customer B kept 2,500 cartons of inventory. So pick pack cost for customer B is img (e) For Data entry : Data entry costs are allocated for customer A and B using cartons of inventory kept by both. Activity cost driver rate for Data entry costs is $1.05 Customer A kept 910 cartons of inventory. So cost for customer A is img Customer B kept 2,500 cartons of inventory. So pick pack cost for customer B is img (f) For Desk Top Delivery: The Desk Top Delivery costs are allocated for customer A and B using cartons of inventory kept by both. Activity cost driver rate for Desk top Delivery costs is $1.05 Customer A kept 910 cartons of inventory. So cost for customer A is img Customer B kept 2,500 cartons of inventory. So pick pack cost for customer B is img Return on sales of Customer A and Customer B is calculated as follows: img Distribution/Services cost is calculated as follows: Cost of warehouse/distribution img Cost of inventory financing img img img

If the profitability of these two customers established on the outcome of the numbers from ABC system is examined, it would be to find out that customer A is much profitable than customer B. If we move our focus from "internal" to "customer", then it seems that customer B is a reliable customer. More service was used by customer B than A. The point that the allied company was billing them incorrect is the own fault of allied. Return on sales of Customer A and Customer B is calculated as follows: img Thus, the return on sales of customer A is 16.70% and customer B is 1.90%. Distribution/Services cost is calculated as follows: Cost of warehouse/distribution img Cost of inventory financing img img img