AC 323 Chapter 14

customer and salesperson

{Customer-revenue analysis} Tracking Price discounts by ______ and by _________ help to improve customer profitability

Fairness(equity)-

-basis for estimating a price satisfactory to the government and its suppliers - cost allocations here is viewed as a "reasonable" or "fair" means of establishing selling price is what criteria of cost allocation?

what percentage of operating income each additional customer contributes

cumulative customer profitability profiles provide information that show________

-corporate costs -division costs -channel costs

Cost categories can be summarized into what three categories?

managers

Customer profitability profiles are a useful tool for ______

highlighted at the bottom of the analysis

Customers are presented in order of contribution to operating income so any customers in a loss position are _______

whales

High margin, low cost to serve are _____

losers

Low margin, high cost to serve are ______

-likelihood of customer retention -potential for sales growth -long-run customer profitability -increases in overall demand from having well-known customers(if applicable) -ability to learn from customers

Managers must explore ways to make unprofitable customers profitable. When doing so, they should include factors other than the current profitability level including

1. Should these costs be allocated to customers when calculating customer profitability, and 2. If they are allocated, on what basis should they be allocated given the weak cause-and-effect relationship between these costs and customer actions?

We've assigned customer-level costs to customers but what about corporate costs, R&D and design costs, etc. -Customers action do not influence these costs which raise what two important questions?

1. Customer output unit-level costs 2. Customer batch-level costs 3. Customer-sustaining costs 4 Distribution-channel costs 5. Division-sustaining costs

What are the five categories for costar-cost analysis?

1. identify the problem and uncertainties 2. Obtain information 3. Make predictions about the future 4. make decision by choosing among alternatives 5. implement the decision, evaluate performance and learn

What are the five step decision making processes to manage customer profitability?

1. cause and effect 2. benefits received 3. fairness(equity) 4. Ability to bear

What are the four criteria for cost allocation decisions?

level 1- static budget variance Level 2 - flexible budget variance level 2-sales volume variance Level 3- sales-quanitiy variance Level 3 - sales mix variance

What are the levels of sales variance?

To make good long-run decisions, managers need to know the cost of all resources (variable or fixed in the short-run) required to sell products to customers, taking into account only relevant costs for the specific decision.

When allocating corporate costs to divisions, should a company allocate only costs that vary with division activity or assign fixed costs as well?

Managers must balance the benefit of using a multiple cost-pool system against the cost of implementing it. Advances in IT technology make it more likely that a multiple cost-pool system will pass the cost-benefit test.

When allocating costs to divisions, channels and customers, how many cost pools should be used?

the information is used to ensure that customers with large contributions to operating income receive a high level of attention from the company while those with lower or loss contributions to operating income do not use more resources than they provide

Why are customer-profitablility used?

Division- sustaining costs

costs that cannot be traced to a product, customer or even a distributive channel. An example would be a divisions managers salary.

customer batch-level costs

cost per customer order, for example, or per delivery

Customer-sustaining costs

cost to support individual customers regardless of number of units or batches

Ability to bear

costs are allocated in proportion to the cost objects ability to bear them. - Generally, larger or more profitable objects receive proportionally more of the allocated costs

difference exist in the operating income earned from different customers.

customer profitability analysis reveals why_____

the highly profitable customers clearly stand out and the number of "unprofitable" customers and the magnitude of their losses are apparent

manager often find the bar chart presentation to be an intuitive way to visualize customer profitability because (1)_____ and (2)______ the number of "unprofitable" customers and the magnitude of their losses are apparent

benefits received

the beneficiaries of the outputs of the cost object are charged with costs in proportion to the benefits received

pricing, by measuring the full costs of delivering products to different customers based on an ABC system.

the first purpose for cost allocation is to provide information for economic decisions, such as ______

customer-profitability analysis

the reporting and assessment of revenues earned from customers and the costs incurred to earn those revenues.

customer output unit-level costs

these are per unit

distribution-channel costs

these costs relate to the the distribution channel rather than to each unit or customer. For example, we might have a wholesale distribution managers salary.

cause and effect

variables are identified that cause resources to be consumed. -most credible to operating managers -integral part of ABC -best way

-the number of products purchased -the magnitude of price discounting

{Customer-revenue analysis} Generally what two variable will explain revenue differences across customers?

Implement the decision, evaluate performance and learn

{five-step decision-making process to manage customer profitability} After the decision is implemented, managers compare actual results to predicted results, and evaluate the decision to determine how the might improve profitability is what step?

identify the problem and uncertainties

{five-step decision-making process to manage customer profitability} How to manage and allocate resources across customers is what step?

obtain information

{five-step decision-making process to manage customer profitability} managers identify past revenues generated by and costs incurred for each customer is what step?

make decisions by choosing among alternatives

{five-step decision-making process to manage customer profitability} managers use customer-profitability profiles to identify customers who deserve the highest service and priority and also to identify ways to make the less profitable customers more profitable is what step?

make predictions about the future

{five-step decision-making process to manage customer profitability} mangers estimate the revenues they expect from each customer with the related customer-level costs expected to be incurred. in doing so , managers should consider future price discounts, customers' demand for special services like rush deliveries is what step?