ACC504 CASE3ASGMTWoodhouseCL FixedCosts
TRIDENT UNIVERSITY
Cheryl L. Woodhouse
Module 3 Case Assignment
ACC 504
Issues in Managerial Accounting
Fixed Costs
Trident University International
Professor: Dr. Ralph Ezelle
May 18, 2015
Actvity Based Costing Analysis for Towels & More
In this case assignment, I will calculate the customer support and distribution costs associated with the three types of customers using a simple strategy first and allocate the costs based on revenues. Recalculate allocations using activity based costing (ABC), determine contribution margin less customer support and distribution costs for both approaches above, identify which type of customer should the company support and why, and finally, identify the characteristics of companies that may benefit from an ABC allocation system?
Calculate using a Simple Strategy
The need to calculate a simple strategy with costs is a indicator of a widespread, deep-seated belief that all costs must somehow be fully allocated to the revenue-producing operating parts of the organization. Such allocations are not always necessary nor useful as management information. However, they are accepted as long as all managers are treated alike. The customer support and distribution costs associated with the three types of customers using a simple strategy first and allocate the costs based on revenues are:
.The company’s total support and distribution costs are $240,000. Sales based off units are at
$20,000 while the contribution margin ratio varies due to ifferenr quality of towels sold to the stores. Based off revenues of $600,00 with the three types of customers:
Description
Customer Support & Distribution Costs
Department Stores
Specialty Shops
Gift Shops
Activity Level
Activity Level
Activity Level
Sales (units) 10,000
5,000
5,000
Revenues
$200,000
$100,000
$300,000
Contribution margin ratio 50%
80%
80%
No. of customers 5
45
250
Total costs/No. of orders places
$40,000
10
90
900
Cheryl L. Woodhouse
Module 3 Case Assignment
ACC 504
Issues in Managerial Accounting
Fixed Costs
Trident University International
Professor: Dr. Ralph Ezelle
May 18, 2015
Actvity Based Costing Analysis for Towels & More
In this case assignment, I will calculate the customer support and distribution costs associated with the three types of customers using a simple strategy first and allocate the costs based on revenues. Recalculate allocations using activity based costing (ABC), determine contribution margin less customer support and distribution costs for both approaches above, identify which type of customer should the company support and why, and finally, identify the characteristics of companies that may benefit from an ABC allocation system?
Calculate using a Simple Strategy
The need to calculate a simple strategy with costs is a indicator of a widespread, deep-seated belief that all costs must somehow be fully allocated to the revenue-producing operating parts of the organization. Such allocations are not always necessary nor useful as management information. However, they are accepted as long as all managers are treated alike. The customer support and distribution costs associated with the three types of customers using a simple strategy first and allocate the costs based on revenues are:
.The company’s total support and distribution costs are $240,000. Sales based off units are at
$20,000 while the contribution margin ratio varies due to ifferenr quality of towels sold to the stores. Based off revenues of $600,00 with the three types of customers:
Description
Customer Support & Distribution Costs
Department Stores
Specialty Shops
Gift Shops
Activity Level
Activity Level
Activity Level
Sales (units) 10,000
5,000
5,000
Revenues
$200,000
$100,000
$300,000
Contribution margin ratio 50%
80%
80%
No. of customers 5
45
250
Total costs/No. of orders places
$40,000
10
90
900
References: Anyidoho. R. (2015). The Purpose of Management Accounting in Small and Large Companies https://suite.io/richmond-anyidoho/3cw5235