Customer Profitability Analysis:

Peran ABC
 Product and Service Costing

Akuntansi
Akuntansi
Managemen
Keuangan
Product costs digunakan
Product costs digunakan untuk planning, control,
untuk menilai sediaan dan directing, and management
menghitung HPP decision making.
 Customer Profitability Analysis
Once we know which customers are the least
profitable, we can modify our relationship to
improve profitability.
Well send a team to your plant
next week and help you set up
an ordering system that gives
us more lead time.

If you ask for fewer

changes, we can
charge you less!

6-3
 Measuring Profit
Absorption Costing
Also referred to as full costing
Required for external financial reporting
Assigns all manufacturing costs, direct materials,
direct labor, variable overhead, and a share of
fixed overhead to each unit of product
Each unit of product absorbs some of the fixed
manufacturing overhead in addition to the
variable costs incurred to manufacture it.

4
 Measuring Profit
Absorption-Costing
Lasersave, Inc., a company that recycles used toner
cartridges for laser printers. During August the firm
manufactured 1,000 cartridges at the following costs:

Direct materials $ 5,000

Direct labor 15,000
Variable overhead 3,000
Fixed overhead 20,000
Total manufacturing cost $43,000

During August, these cartridges were sold at $60 each.

Variable marketing cost was $1.25 per unit. Fixed
expenses were $12,000.

5
 Measuring Profit
Absorption-Costing

1,000 units produced; 1,000 units sold

*Direct materials ($5 x 1,000) $ 5,000

Direct labor ($15 x 1,000) 15,000
Variable overhead ($3 x 1,000) 3,000
Fixed overhead 20,000
Total manufacturing overhead
and cost of goods sold $43,000

6
 Measuring Profit
Absorption-Costing

1,250 units produced; 1,000 units sold

*Direct materials ($5 x 1,250) $ 6,250 Production exceeded sales by 250 units;
Direct labor ($15 x 1,250) 18,750
fixed overhead of $16 per unit is carried
Variable overhead ($3 x 1,250) 3,750
Fixed overhead ($16 per unit) 20,000
in inventory thus reducing cost of goods
Total manufacturing overhead $48,750 sold and increasing net income
Add: Beginning inventory 0
Less: Ending inventory (9,750)
7 Cost of goods sold $39,000
 Measuring Profit
Variable-costing
Also referred to as direct costing
Assigns only unit-level variable manufacturing
costs to the product
Direct materials
Direct labor
Variable overhead
Fixed overhead is treated as a period cost

8
 Measuring Profit

*Direct materials $ 5,000

Direct labor 15,000
Variable overhead 3,000
Total variable manufacturing expenses $23,000
Add: Variable marketing expenses 1,250

9 Total variable expenses $24,250

 Measuring Profit

*1,300 $39 = $50,700

10
 Measuring Profit

11
 Profitability of Segments
Customer profitability
Companies that assess the profitability of
various customer groups can more
accurately target their markets and increase
profits.
1) Identify the customer
2) Determine which customers add value to the
company

12
 Measuring Customer Profitability

Studies have shown that only 20% of a

companys customers contribute to profits.
The remaining 80% generate losses.

Profit can be measured by:

6-13
 Measuring Customer Profitability -
Example
Assume Koala Camp Gear looks at 5 of its
customers.
$200,000

$150,000 Bar graphs

Customer Profitability

$100,000
are common
analytical
$50,000
tools.
$0

-$50,000

-$100,000
107 108 101 102 114 Customer #
6-14
 Measuring Customer Profitability -
Example
Note that attention should be focused on
customers #102 and #114.
$200,000
Question:
$150,000
Customer Profitability

$100,000
Why are
these two
$50,000
customers
$0
not
-$50,000
profitable?
-$100,000
107 108 101 102 114 Customer #
6-15
 Measuring Customer Profitability -
Example
Comparing the customer-related costs for each
customer can reveal helpful insights.
We Investigate and find. . .

For Customer #102, costs of order For Customer #114, the cost of
processing, engineering/design special packaging is 4 the norm.
changes, and special handling are The cost or special handling is 6
above normal. the norm.

6-16
 Identify Effective & Ineffective
Customer-Related Activities
Study closely all the customer-related activities
that drive cost.

Typical Customer-Related Activities Include:

Processing Orders Billing

Sales Contacts Engineering/Design
Sales Visits Changes
Processing Special Packaging
Shipments Special Handling
6-17
 Customer Profitability Analysis

HealthWave, Inc. sells non-prescription

pharmaceuticals to three major customer
Which of these
types: customer
Pharmacies groups is the
Groceries
most profitable
Herbal Therapists
for
HealthWave?

6-18
 Exh.
6.5

Sales Pattern Analysis

Product-Line Data Non-Prescription Supplements Herbal Remedies

At this point, it would appear that
Revenue $26,900,000 $44,260,000
Pharmacies provide$19,840,000
the highest
Contribution Margin ratio 48.0% 39.0%
contribution 31.0%
margin ratio.
COGS ratio 52.0% 61.0% 69.0%
Lets examine further.
Traced Product Sales Pharmacy Groceries Herbal Therapists
Sales of:
Non-prescription drugs 78.0% 22.0% 0.0%
Supplements 8.0% 83.0% 9.0%
Herbal Remedies 5.0% 34.0% 61.0%
Traced Revenues $25,514,800 $49,399,400 $16,085,800
COGS $13,755,008 $30,140,662 $10,780,530
Contribution Margin $11,759,792 $19,258,738 $5,305,270
Contribution Margin ratio 46.1% 39.0% 33.0%
6-19
 Sales & Admin Cost Analysis

6-20
 Exh.
6.6

Selling Cost Analysis

HealthWave sells its products using sales personnel in the field and
telephone ordering. A summary of those cost appear below. Note that
Herbal Therapists appear to have the lowest selling costs.

Pharmacy Groceries Herbal Therapists

Sales Personnel Costs $2,475,000 $1,850,000 $0
Estimated Telemarketing
Costs 65,000 55,250 9,750
Estimate Sales
Administration Cost 120,000 297,600 62,400
Total Selling and Ordering
Costs $2,660,000 $2,202,850 $72,150
6-21
 Exh.
6.7

Marketing Cost Analysis

Marketing costs include personnel, databases, equipment, and

facilities. HealthWaves costs can be broken down into Marketing
Management Costs, Promotion and Incentive Costs, Advertising
Costs, and Catalogue Development Costs.
Again, Herbal Therapists have the lowest marketing cost.

Cost Categories Pharmacy Groceries Herbal Therapists

Marketing Management $198,000 $126,000 $36,000

Promotion & Incentives 990,000 1,260,000 0
Advertising 1,200,000 1,200,000 0

Catalogue Development 0 0 250,000

Total Marketing Costs $2,388,000 $2,586,000 $286,000
6-22
 Exh.
6.8

Distribution Costs Analysis

Distribution costs include packing, shipping and delivering

products or services to customers. HealthWave delivers goods
using its own trucks and a private delivery service,
PackageXpress.
This time, Grocery customers have the lowest distribution cost.

Cost Categories Pharmacy Groceries Herbal Therapists

HealthWave Trucks $7,083,200 $996,800 $0
PackageXpress 0 0 1,930,300

Total Distribution Costs $7,083,200 $996,800 $1,930,300

6-23
 Exh.
6.10

G & A Costs Analysis

Typically, general and administrative costs are not directly

customer-related. These costs can often be difficult to trace to
specific customers. HealthWave breaks them into two broad
categories; Customer Service and Manufacturing Support
Again, Herbal Therapists have the lowest marketing cost.

Cost Categories Pharmacy Groceries Herbal Therapists

Customer Service $1,623,100 $3,142,600 $1,023,300
Manufacturing Support 624,200 1,367,600 489,200
Total General &
Administration Costs $2,247,300 $4,510,200 $1,512,500

6-24
 Exh.
6.11

Customer Profitability Analysis

Finally, we put all the information together to determine which

customer-type is the most profitable. The Groceries appear to be
the most profitable customer.

Pharmacy Groceries Herbal Therapists

Traced Revenues $ 25,514,800 $ 49,399,400 $ 16,085,800
COGS (13,755,008) (30,140,662) (10,780,530)
Contribution Margin $ 11,759,792 $ 19,258,738 $ 5,305,270
Selling Costs (2,660,000) (2,202,850) (72,150)
Marketing Costs (2,388,000) (2,586,000) (286,000)
Distribution Costs (7,083,201) (996,799) (1,930,296)
Gen'l & Admin Costs (2,247,284) (4,510,232) (1,512,484)
R&D (74,400) (643,200) (482,400)
Customer Income $ (2,693,093) $ 8,319,657 $ 1,021,940
Return on Sales -10.6% 16.8% 6.4%
6-25
 Common-Sized Profit Statements

To better compare different sets of data, the dollar amounts can be recast
as a percentage of revenues.

Pharmacy Groceries Herbal Therapists

Traced Revenues 100.0% 100.0% 100.0%
COGS -53.9% -61.0% -67.0%
Contribution Margin 46.1% 39.0% 33.0%
Selling Costs -10.4% -4.5% -0.5%
Marketing Costs -9.4% -5.2% -1.8%
Distribution Costs -27.8% -2.0% -12.0%
Gen'l & Admin Costs -8.8% -9.1% -9.4%
R&D -0.3% -1.3% -3.0%
Customer Income -10.6% 16.8% 6.4%
Return on Sales -10.6% 16.8% 6.4%
6-26
 What To Do?

The Pharmacy customers are not contributing to HealthWaves

profitability. What are the options?

Decrease
Do Nothing operating
costs

Drop
Increase efficiency of
pharmacy
serving pharmacy
customers
customers

6-27
 Customer Profitability Analysis
Using ABC to determine the activities, costs,
and profit associated with serving specific
customers.

Customer makes frequent order

For Example changes.
For various reasons,
some customers are
less profitable than Customer needs special parts.
others.

Customer is difficult to please.

6-28
The Concept of Activity-Based Costing
(ABC)
Activity-Based
Costing

Departmental
Overhead
Rates

Plantwide
Overhead
Rate

Overhead Allocation
Activity-Based Costing
ts.
Metoda ABC didasarkan pd
pembahaman bhw berbagai
aktivitas di departemen
menybabkn terjadinya costs
 ABC: Two Stage Assignment

Cost of Resources

Direct Tracing Driver Tracing

Assign Costs

Activities

Driver Tracing
Assign Costs

Products
 Allocation of Overhead: ABC
Metoda Pembebanan Berdasarkan Aktivitas (ABC)
Tarif dihitung untuk setiap aktivitas yang dinikmati
setiap produk/jasa
Pembebanan tarif dilakukan dalam dua tahap:
Tahap I: pembebanan overhead ke cost pool
(departemen)
Tahap II: pembebanan overhead dari setiap cost pool ke
produk
 Allocation of Overhead: ABC
Contoh jenis aktivitas:
Machine set-up
Purchase orders
Quality inspections
Production scheduling/orders
Machine time
Material receipt
Shipments
Inventory movements
 Allocation of Overhead: ABC
Langkah penentuan tarif
Proses value analysis: analisis terhadap
aktivitas yang diperlukan untuk membuat
produk
Identifikasi activity centers, yaitu bagian dari
proses produksi di mana manajemen ingin
melaporkan kosnya secara terpisah
 Allocation of Overhead: ABC
Jenis Activity
Unit level activities
Batch level activities
Produk level activities
Facility level activities
Pembebanan kos ke activity centers
Pembebanan kos ke produk
 The End