Reference no: EM131909918
Problem - Suppose that Stillwater Designs has two classes of customers just-in-time (JIT) customers and non-just-in-time (nonJIT) customers. The JIT customers place small, frequent orders, and the nonJIT customers tend to place larger, less frequent orders. Both types of customers are buying the same type of product. Stillwater Designs provides the following information about customer-related activities and cost for the most recent quarter:
Customers
JIT nonJIT
Sales orders 700 70
Sales calls 70 70
Service calls 350 175
Average order size 750 7,500
Manufacturing cost per unit $125 $125
Selling price per unit $150 $150
Customer Costs
Processing sales orders $3,080,000
Making sales calls 1,120,000
Servicing goods 1,050,000
Total $5,250,000
A. Calculate the total revenues per customer category , and assign the customer costs to each type of customer (JIT and nonJIT) by using revenues as the allocation base for assigning the customer costs.
B. Calculate the customer cost for each type of customer using activity-based cost assignments.
C. Discuss the merits of offering the nonJIT customers a $2 per unit price decrease (assuming that they are agitating for a price concession). Use calculations to support your response.
D. Assume that the JIT customers are simply imposing the frequent orders on Stillwater Designs. No formal discussions have taken place between the JIT customers and Stillwater Designs regarding the supply of goods on a just-in-time basis. The sales pattern has simply evolved over time. As an independent consultant, what suggestions would you make to Stillwater Designs' management when
having these discussions with the JIT customers and why?