Question

How might customer profitability analysis be used to improve organisational performance? Suggest and explain which costing approach can be used to implement customer profitability analysis?

Answer 1

Customer profitability analysis helps the business entity to identify the profitability that can be achieved from different target customer groups based on their past Events . This helps to improve the organization performance in the way management to take decision to appropriately allocate their products to this various groups in order to maximize their profit.

The ABC cost method can be used to implement customer profitability analysis as this method helps to assign the costs to the products or services based on the overhead activities for manufacturing products and providing after sales service .This helps in calculating the profit that can be achieved from different customer groups.

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