Bigdog Company distributes pet products. Its ABC system has five activities: Activity Area Cost Driver Rate in 2020 1. Order processing $50 per order 2. Line-item ordering $5 per line item 3. Store deliveries $40 per store delivery 4. Carton deliveries $6 per carton 5. Shelf-stocking $19 per stocking hour Rufus McBrain, the controller of Bigdog Company, wants to use this ABC system to examine customer profitability. He focuses on two of his customers to find out the insights he can gain from using this system. Data for these two customers in April 2020 are as follows:
Bigdog Company distributes pet products. Its ABC system has five activities:
|
Activity Area |
Cost Driver Rate in 2020 |
|
1. Order processing |
$50 per order |
|
2. Line-item ordering |
$5 per line item |
|
3. Store deliveries |
$40 per store delivery |
|
4. Carton deliveries |
$6 per carton |
|
5. Shelf-stocking |
$19 per stocking hour |
Rufus McBrain, the controller of Bigdog Company, wants to use this ABC system to examine customer profitability. He focuses on two of his customers to find out the insights he can gain from using this system. Data for these two customers in April 2020 are as follows:
|
|
Pet Store Annerley |
RSPCA store Springwood |
|
Total orders |
13 |
7 |
|
Average line items per order |
11 |
19 |
|
Total store deliveries |
5 |
7 |
|
Average cartons shipped per store delivery |
21 |
18 |
|
Average hours of shelf stocking per store delivery |
0.5 |
0.75 |
|
Average revenue per delivery |
$2,600 |
$1,900 |
|
Average cost of goods sold per delivery |
$2,100 |
$1,700 |
- Use the ABC information to compute the operating income for each customer in April 2020.
- Comment on the results from ABC analysis.
- Make two recommendations that you think Bigdog should consider in light of this new customer-profitability information using ABC.
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