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Allied Office Products Essay

1412 words - 6 pages

Allied Office Products
Allied Office Products is a large corporation that builds its reputation on its annual sales of $900 million in business forms and specialty in paper products. Its paper products vary from envelopes to greeting cards and writing papers.

Allied has incorporated a new program called Total Forms Controls (TFC) for its clients enabling Allied to separate this business form division to handle client accounts. TFC provides services of warehousing and distribution, inventory control and forms usage reporting. Further more Allied offers several other services such as “pick-pack and desk top delivery” (Govindarajan &Anthony 2007, p.348) to enhance their ...view middle of the document...


2) Using your new costing system, calculate distribution services costs for “customer A” and “customer B”
Customer A Customer B

Average inventory 350 cartons@ $4.43=1550.5 700cartons@$4.43=3101
Requisitions 364@$5.81=2114.84 790@$5.81=4589.9
Number of lines 910@$0.98=891.8 2500@$0.98=2450

“Pick-pack” 910@$1.05= 955.5 2500@$1.05=2625
Annual freight cost $ 2,250 $ 7,500
Extra charging after 9 months nil $7000@1.5%*3=315
Desk top deliveries nil 26 per year@$29.41=764.66
Data entry 910@$0.79=718.9 2500@$0.79=1975

Total $8,483 $23321

Here is an example how to calculate the cost using the ABC method for customer B, there are 700 cartons’ inventories, 790 requisitions and 2,500 line all lines with ‘pick-pack’ activity. Besides, customer needs 26 times desk top deliveries which cost $764.66 more. In addition, for customer B there is $7,000’s inventory stored over 9 months, the extra charging after 9 months should be $315. It added up to $23,320.56 for customer B.

Costs for Customer A & B:
Customer A:

Customer B:

3) What inference do you draw about the profitability of these 2 customers?
Currently customer A & B both face the service charges of 32.2% of its total product costs $ 50,000 that is $16,100.

Customer A: $16,100 – 8483 = $7617
Customer B: $23321 – 16,100 =$7221

As shown here, A was over charged $ 7,617 while B was under charged $ 7,221
From another viewpoint:

  old method ABC method

  customer A customer B customer A customer B
sales $79,320 $79,320 $79,320 $79,320
products cost $50,000 $50,000 $50,000 $50,000
services fees $16,100 $16,100 $8,483 $23,321
gross profit $13,220 $13,220 $20,837 ...

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