Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed
Customer profitability, service company
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| 12.20 Customer profitability, service company. (20–30 min) 1 (in thousands) Customer Customer Customer operating revenues costs income Hytop BV €260 €182 €78 KNMI 180 184 (4) HSP 163 178 (15) BPC 322 225 97 ES 235 308 (73) HE 80 74 6 KIM 174 100 74 ED 76 108 (32) RC 137 110 27 NRCH 373 231 142 This information can be presented as follows (in thousands % of cumulative % of Cumulative to total cumulative Operating operating operating Cumulative to total Customer income income income Revenue revenue revenue NRCH €142 €142 47% €373 €373 19% BPC 97 239 80 322 695 35 Hytop BV 78 317 106 260 955 48 KIM 74 391 130 174 1,129 56 RC 27 418 139 137 1,266 63 HE 6 424 141 80 1,346 67 KNMI (4) 420 140 180 1,526 76 HSP (15) 405 135 163 1,689 84 ED (32) 373 124 76 1,765 88 ES (73) 300 100 235 2,000 100 Two of the ten customers provide 80% of the total operating income while providing only 35% of the total revenue. 2 The options that Overloon should consider include a Increase the attention paid to NRCH and BPC. These are key customers and every effort has to be made to ensure they retain Overloon. Overloon may well want to suggest a minor price reduction to signal how important it is in their view to provide a cost-effective service to these customers. b Seek ways of reducing the costs or increasing the revenues of the problem accounts – ES and ED. For example, are the copying machines at ES outdated and in need of repair If yes, an increased charge maybe appropriate. Can Overloon provide better onsite guidelines to users about ways to reduce breakdowns Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 c As a last resort, Overloon may want to consider dropping particular accounts. For example, if ES will not agree to a fee increase but has machines continually breaking down, Overloon may well decide that it is time not to bid on anymore work for this customer. 3 Major problems inaccurately estimating [AQ11] the operating costs of each customer are a Basic underlying records may not be accurate. For example, some technicians include travel time, break time, etc, in their time records to create an appearance of high-work effort. b Not all costs are easily assignable to individual customers. For example, how is the cost of a trip to pickup parts for three customers assigned among individual customers c Many of Overloon’s costs are not related to specific customers. For example, advertising by Overloon is aimed at a general market rather than being targeted to a specific potential customer. |