Question

Activity-Based Customer-Driven Costs

Suppose that Stillwater Designs has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors are buying the same product. Stillwater Designs provides the following information about customer-related activities and costs for the most recent quarter:

	JIT Distributors		Non-JIT Distributors
Sales orders	1,200		120
Sales calls	70		70
Service calls	350		175
Average order size	550		5,500
Manufacturing cost/unit	$125		$125
Customer costs:
Processing sales orders	$3,280,000
Selling goods	1,120,000
Servicing goods	1,050,000
Total	$5,450,000

Required:

1. Calculate the total revenues per distributor category, and assign the customer costs to each distributor type by using revenues as the allocation base. Selling price for one unit is $150. Round calculations to the nearest dollar.

	JIT		Non-JIT
Sales (in units)
Sales	$		$
Allocation	$		$

2. Conceptual Connection: Calculate the customer cost per distributor type using activity-based cost assignments. Round the interim calculations to the nearest dollar.

	JIT		Non-JIT
Ordering costs	$		$
Selling costs	$		$
Service costs	$		$
Total	$		$

For non JIT distributors by how much can the price be decreased without affecting customer profitability? Round your answer to the nearest cent.

$ per unit

Answer 1

1	Particulars	JIT	NON JIT	Total
	Sales (In Units)	$6,60,000.00	$6,60,000.00	$13,20,000.00
	Sales	$9,90,00,000.00	$9,90,00,000.00	$19,80,00,000.00
	Allocaton of Customer Expenses	$27,25,000.00	$27,25,000.00	$54,50,000.00
2	Particulars	JIT	NON JIT	Total
	Ordering costs	$29,81,818.18	$2,98,181.82	$32,80,000.00
	Selling costs	$5,60,000.00	$5,60,000.00	$11,20,000.00
	Service costs	$7,00,000.00	$3,50,000.00	$10,50,000.00