Professional Documents
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Power
MWH
Occupancy (Plant)
Square Feet
O
Department Resources
Machine Hours.
Assembly Supervisors
SUP SUP M O
Machines
M
SUP
Setup Activity
Assembly Activity
Setups
SA
Machine Hours
AA
Parts
Direct Labor
Parts
SA AA
Direct Labor
SA
AA
Parts
Direct Labor
SA
AA
Display Type A
Product Cost = $16.27
Assembly Department
Power
MWH
Occupancy (Plant)
Square Feet
O
Department Resources
Machine Hours.
Assembly Supervisors
SUP SUP M O
Machines
M
Administrative expenses
M O
SUP
Setup Activity
Assembly Activity
Setups
SA
Machine Hours
AA
Taxes
SA AA
Parts
Direct Labor
Parts
SA AA
Direct Labor
SA
AA
Parts
Direct Labor
Net income
Display Type A
Product Cost = $16.27
Assembly Department
Power
MWH
Occupancy (Plant)
Square Feet
O
Department Resources
Machine Hours.
Assembly Supervisors
SUP SUP M O
Machines
M
Administrative expenses
M O
SUP
Setup Activity
Assembly Activity
Setups
SA
Machine Hours
AA
Taxes
SA AA
Parts
Direct Labor
Parts
SA AA
Direct Labor
SA
AA
Parts
Direct Labor
Net income
Display Type A
Product Cost = $16.27
Assembly Department
Power
MWH
Occupancy (Plant)
Square Feet
O
Department Resources
Machine Hours.
Assembly Supervisors
SUP SUP M O
Machines
M
Administrative expenses
M O
SUP
Setup Activity
Assembly Activity
Setups
SA
Machine Hours
AA
Taxes
SA AA
Parts
Direct Labor
Parts
SA AA
Direct Labor
SA
AA
Parts
Direct Labor
Net income
Display Type A
Product Cost = $16.27
Assembly Department
Power
MWH
Occupancy (Plant)
Square Feet
O
Department Resources
Machine Hours.
Assembly Supervisors
SUP SUP M O
Machines
M
SUP
Setup Activity
Assembly Activity
Setups
SA
Machine Hours
AA
Parts
Direct Labor
Parts
SA AA
Direct Labor
SA
AA
Parts
Direct Labor
SA
AA
Display Type A
Product Cost = $16.27
Assembly Department
L.A. Darling has three major customers: Wal-Mart, Kmart, and Walgreens. How would Darling integrate productcost data in a system to determine the profitability of these customers?
Power
MWH
Occupancy (Plant)
Square Feet
O
Consider Wal-Mart
Department Resources
Machine Hours.
Assembly Supervisors
SUP SUP M O
Machines
M
SUP
Setup Activity
Assembly Activity
Setups
SA
Machine Hours
AA
Parts
Direct Labor
Parts
SA AA
Direct Labor
SA
AA
Parts
Direct Labor
SA
AA
Display Type A
Product Cost = $16.27
Assembly Department
Power
MWH
Occupancy (Plant)
Square Feet
O
Department Resources
Machine Hours.
Wal-Marts gross profit from display type A is the number of A units purchased times the gross profit per unit.
GP Display Type A = Price of A $16.27
Assembly Supervisors
SUP SUP M O
Machines
M
SUP
Setup Activity
Assembly Activity
A Mix of WalMart
SA AA
Setups
SA
Machine Hours
AA
Parts
Direct Labor
Parts
SA AA
Direct Labor
SA
AA
Parts
Direct Labor
WMGP
Display Type A
Product Cost = $16.27
Assembly Department
Wal-Mart Profitability
A similar calculation is made for display types B and C to determine total profitability for Wal-Mart.
GP Display Type A = Price of A $16.27 GP Display Type B = Price of B $26.44 GP Display Type C = Price of C $50.90
A B A Mix of WalMart C
WMGP
WMGP
Wal-Mart Profitability
A B A Mix of WalMart C
B B
B
C A Mix of Walgreens C
A
Mix of Kmart
WMGP
KMGP
WGGP
WMGP
KMGP
WGGP
Wal-Mart Profitability
Kmart Profitability
Walgreens Profitability
Sales COGS GP
System
Selling expenses Administrative expenses General expenses Operating income Taxes Net income
Now Darling knows how gross profit is distributed among its major products and customers. But it has not assigned costs to serve its customers. These costs are mostly GP Display Display GP Display expenses selling and someGP Type B = Type C = Type A = Price of B of C Price of A administrative and general Price expenses $26.44 $50.90 $16.27 on the P & L. How be B would this C A done? B B B
A Mix of WalMart C
A
Mix of Kmart
A Mix of Walgreens
WMGP
KMGP
WGGP
WMGP
KMGP
WGGP
Wal-Mart Profitability
Kmart Profitability
Walgreens Profitability
Interviews with operating personnel will identify key costto-serve activities such as pre- and postsales support, order processing, type of shipping, and order changes. Resources consumed will also be identified and assigned to these activities.
A B A Mix of WalMart C
B B
B
C A Mix of Walgreens C
A
Mix of Kmart
WMGP
KMGP
WGGP
WMGP
KMGP
WGGP
Wal-Mart Profitability
Kmart Profitability
Walgreens Profitability
Plausible and reliable cost-allocation bases are chosen in order to allocate activity-cost pools to customer cost objects.
A B A Mix of WalMart C
B B
B
C A Mix of Walgreens C
A
Mix of Kmart
WMGP
KMGP
WGGP
WMGP
Act. 1
Act. 2
Act. 3
KMGP
Act. 1
Act. 2
Act. 3
WGGP
Act. 1
Act. 2
Act. 3
Wal-Mart Profitability
Kmart Profitability
Walgreens Profitability
Now Darling Panel A can Exhibit 12-23, L.A. Darlings Product-Cost calculateSystem gross profit by product,
A B C Mix of WalMart
B B
B
C A Mix of Walgreens C
A
Mix of Kmart
Administrative expenses
General expenses
WMGP
KMGP
WGGP
Operating income
WMGP
Act. 1
Act. 2
Act. 3
KMGP
Act. 1
Act. 2
Act. 3
WGGP
Act. 1
Act. 2
Act. 3
Taxes
Net income
Wal-Mart Profitability
Kmart Profitability
Walgreens Profitability
Now Darling Panel A can Exhibit 12-23, L.A. Darlings Product-Cost calculateSystem gross profit by product, customer,
A B C Mix of WalMart
B B
B
C A Mix of Walgreens C
A
Mix of Kmart
Administrative expenses
General expenses
WMGP
KMGP
WGGP
Operating income
WMGP
Act. 1
Act. 2
Act. 3
KMGP
Act. 1
Act. 2
Act. 3
WGGP
Act. 1
Act. 2
Act. 3
Taxes
Net income
Wal-Mart Profitability
Kmart Profitability
Walgreens Profitability
Now Darling Panel A can Exhibit 12-23, L.A. Darlings Product-Cost calculateSystem gross profit by product, customer, and operating income by customer.
L.A. Darlings P & L: Sales COGS GP Selling expenses
A
A B C Mix of WalMart
B B
B
C A Mix of Walgreens C
A
Mix of Kmart
Administrative expenses
General expenses
WMGP
KMGP
WGGP
Operating income
WMGP
Act. 1
Act. 2
Act. 3
KMGP
Act. 1
Act. 2
Act. 3
WGGP
Act. 1
Act. 2
Act. 3
Taxes
Net income
Wal-Mart Profitability
Kmart Profitability
Walgreens Profitability