Blue Ridge Case †Activity Based Costing (ABC) Essay

1) positiveness Analysis mordant cover Large strong suit Small Totalgross revenue $308,762.00 $183,744.00 $318,024.00 $810,530.00Manufacturing bes $112,552.70 $72,164.09 $162,864.09 $347,580.88Sales and Administration Costs $78,303.47 $50,790.54 $156,805.99 $285,900.00Total Costs $190,856.16 $122,954.63 $319,670.08 $633,480.88Cost as % Sales 61.81% 66.92% 100.52% 78.16%Profit $117,905.84 $60,789.37 ($1,646.08) $177,049.12Profit security deposit 38.19% 33.08% -0.52% 21.84%Note For precise calculations please reference inclined document.2) Define action go for Blue ridge based on the analysisThe above guest profitability analysis indicates that the minuscular nodes have a negative profit margin. As this peculiar(prenominal) customer base accounts for 40% of Blue Ridges total sales volume we recommend the following action steps be taken in company to extend their profitability* Develop an on line/electronic ordering organisation for customers in order to cancel out the high be associated with entering purchase orders by Blue Ridge employees. Currently this represents 14.56% of total be with 12.23% of total cost allocated to small customers.* Develop an electronic payment system for small customers, where payments are wire directly into Blue Ridges bank account onwards the order is processed and shipped. Currently credit checks for small customers represent1% of total costs.* Study the make on wrong additions for small customers. Currently, shipping costs for small customers represent 4.14% of the total costs, increasing the price for small customers could help offset the shipping costs.* deliver a study on small customer orders to help regularise if a minimum order requirement can help eliminate the costs associated with shipping without sacrificing the high volume.* Invest in new(a) inking technology in order to help warrant increases in prices. The investment should eliminate their customer complaints and increase their demand.* Determine the costs associated with investing in a higher quality towel and align with an let sales strategy.* Determine if advertising costs are being properly allocated.* Study the effects of implementing an motivator program for the independent manufactures who achieve a plastered sales volume.3) Discuss the advantages and disadvantages of this customer profitability system. Did Blue Ridge define the right activities?Advantages* The system provides managers with an penetration into why differences exist in the operating incomes make from different customers.* The system enables managers to determine profitability levels (profit contributions) of specific customer groups and highlights the costs assignable to each customer.* The system allocates costs of activities that support individual customer groups to incite in determining cost reduction strategies.* The outline focuses on profit rather than turnover.* The system allocates the germane(predicate) costs associated wit h each customer.Disadvantages* The system may exhort managers to make quick decision such as firing customers, instead of implementing cost lancinate initiatives.* The system focuses heavily on the different types of customers rather than on the different products.* The system does not provide detailed information on the order size and relative frequency for each individual company within their customer group.* The system does not focus on customer behavior such as loyalty and incoming growth patterns.* The system does not enable managers to determine if price discounting testament encourage increased purchases patch minimizing profit erosion.In conclusion Blue Ridge defined the right activities however they might desire to consider conducting a product profitability analysis. This will enable them to manage the product mix more(prenominal) efficiently and identify future cost cutting in initiatives. In addition, we fell this would be other valuable exercise in determining last or not going national would be profitable for Blue Ridge.