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Allied office products

reputation on its annual sales incorporated a new program called Total Forms Controls (TFC) for its clients Allied clients vary from small to large and all use their distribution center

000=$0.43 Requisition Handling $1801k/310.000=$0.79 .05 Desk top delivery $ 250k/ 8500=$29.000=$5.41 Data entry $ 612k/775.98 “Pick-pack” activity $ 734k/697.81 Basic warehouse stock selection $761k/775. calculate “ABC” based services costs for the TFC business Storage $1550k Requisition Handling $1801k Basic warehouse stock selection $ 761 k “Pick-up” activity $ 734k Total $ 5708k Data entry $ 612k Desk top delivery $ 250k Cost per activities can be found Storage $1550k/350.000=$4.500=$1.Using the information in the text and in exhibit 5.

81=4589.500 $7000@1.8 Customer B 700cartons@$4.5 364@$5.98=891.Using your new costing system.79=718.81=2114.9 $8.43=1550.483 2500@$1.05= 955.41=764.66 2500@$0.79=1975 $23321 Extra charging after 9 months Desk top deliveries Data entry Total .9 2500@$0.98=2450 “Pick-pack” Annual freight cost 910@$1. calculate distribution services costs for “customer A” and “customer B” Customer A Average inventory Requisitions Number of lines 350 cartons@ $4.05=2625 $ 7.250 nil nil 910@$0.5 $ 2.5%*3=315 26 per year@$29.84 910@$0.43=3101 790@$5.

500 .Costs for Customer A & B: Customer A: $1500+$2250=$3750 Customer B: $50.000+$7500=$57.

100 – 8483 = $7617 Customer B: $23321 – 16.000 $50.221 From another viewpoint: old method ABC method customer A $79.100 $13.320 $50.100 =$7221 As shown here.100 $13.483 $20.220 % in gross profit 17. A was over charged $ 7.617 while B was under charged $ 7.320 customer A $79.320 customer B $79.0% 26.220 $16.0% 7.837 customer B $79.0% 17.000 $23.321 $5.999 sales products cost services fees gross profit $50.What inference do you draw about the profitability of these 2 customers? Currently customer A & B both face the service charges of 32.320 $50.2% of its total product costs $ 50.100.000 $16.000 $8.7% .000 that is $16. Customer A: $16.

Should TFC implement the SBP pricing system •Yes. so that it can change out distribution services •Equality and fairness to all customers •Reduced prices beneficial •Provides profit opportunity •Profit margins increasing •Distribution centers .

.What managerial advice do you have for Allied about the Total Forms Control (TFC) business? How does Exhibit 1 relate to this question? Adjustment of the management area to level of service true and fair treatment to the clients Fees must be charged for usage of distribution centre at level of services provided to clients.