The following is the case study completed in regards to Allied Office Products. Currently Allied Office Products charges customers a flat fee on product cost. This case study was performed in order to see if Allied Office Products should switch and implement the Sales Based Pricing System.
“ABC” based service costs for the TFC business were calculated and Total Cost/Expense were found to be $1,550,000 Storage, $1,801,000 Requisition Handling, $ 761,000 Basic Warehouse Stock Selection, $734,000 “Pick-up” Activity, $612,000 Data entry, and $250,000 Desk Top Delivery for a total of $5,708,000. After finding the Total Cost we were able to divide that by Activity Driver Units to get the ...view middle of the document...
We would also suggest maintaining the amount charged for Customer A’s service fees and increasing their level of usage.
In addition we would recommend TFC implementing and applying the sales based pricing (SBP) system. As it currently stands TFC charges all customers, regardless of size, the same percentage of service costs. With the current method there are customers who may be over charged for services they are not using or only use a small amount of services, while other customers are being under charged for services they use a large amount of. By switching to the SBP system it will help make the charges that Allied Office Products charges fair by only charging the customer for what they are actually using, and also helping make Allied Office Products cost allocation process better. A better cost allocation process allows for better analysis of customers to have the knowledge of the more profitable customers, and over time TFC can improve profit by focusing on managing individual accounts in order to identify the most profitable accounts.
“ABC” Based Service Costs for the TFC Business
Activity | Total Cost/ Expense | Activity Driver | Activity Driver Units | Activity Based Cost |
Storage | $1,550,000.00 | Cartons | 350000 | $4.43 |
Requisition Handling | $1,801,000.00 | Requisitions | 310000 | $5.81 |
Basic Warehouse Stock Selection | $761,000.00 | Requisition Lines | 775000 | $0.98 |
"Pick-Pack" Activity | $734,000.00 | Lines Requiring pick-pack | 697500 | $1.05 |
Data Entry | $612,000.00 | Requisition Lines |...