Blue Ridge Case †Activity Based Costing (ABC) Essay

1) Profitability synopsis no-good ridgepole Large forte Small sumgross revenue $308,762.00 $183,744.00 $318,024.00 $810,530.00Manufacturing cost $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 Margin 38.19% 33.08% -0.52% 21.84% take note For detailed calculations please reference inclined document.2) Define action steps for Blue ridgeline based on the epitomeThe above client favourableness compend indicates that the small nodes have a invalidating profit margin. As this specific customer base accounts for 40% of Blue Ridges f argon gross revenue volume we recommend the adjacent action steps be taken in collection to increase their profitability* Develop an on line/electronic ordering arrangement for customers in order to eliminate the uplifted be associated with ingress purchase orders by Blue Ridge employees. Currently this founds 14.56% of gist cost with 12.23% of heart costs allocated to small customers.* Develop an electronic payment system for small customers, where payments are wired directly into Blue Ridges camber account before the order is tasteful and shipped. Currently credit checks for small customers represent 1% of total costs.* Study the set up on price increases for small customers. Currently, ecstasy costs for small customers represent 4.14% of the total costs, increasing the price for small customers could swear out offset the shipping costs.* Conduct a study on small customer orders to champion come up if a stripped-down order requirement can help eliminate the costs associated with shipping without sacrificing the high volume.* Invest in new inking technology in order to help liberate increases in prices. The investment should eliminate their customer complaints and increas e their demand.* Determine the costs associated with expend in a higher step towel and align with an appropriate sales strategy.* Determine if advertising costs are being properly allocated.* Study the effects of implementing an incentive program for the independent manufactures who win a certain sales volume.3) discuss the advantages and disadvantages of this customer profitability system. Did Blue Ridge define the pay activities?Advantages* The system provides managers with an discernment into why differences exist in the operate incomes earned from diverse customers.* The system enables managers to get hold profitability levels (profit contributions) of specific customer groups and highlights the costs assignable to to each one customer.* The system allocates costs of activities that support individual customer groups to helper in determining cost step-down strategies.* The System cerebratees on profit kinda than turnover.* The system allocates the relevant costs a ssociated with each customer.Disadvantages* The system may prompt managers to suck quick decision such(prenominal) as firing customers, instead of implementing cost smashing initiatives.* The system focuses heavily on the different types of customers rather than on the different products.* The system does not provide detailed cultivation on the order size and absolute frequency for each individual company in spite of appearance their customer group.* The system does not focus on customer behavior such as loyalty and early produce patterns.* The system does not enable managers to determine if price discounting willing encourage change magnitude purchases while minimizing profit erosion.In shoemakers last Blue Ridge defined the right activities however they might want to subscribe conducting a product profitability analysis. This will enable them to manage the product fuse more efficiently and identify future cost cutting in initiatives. In addition, we fell this would be another priceless exercise in determining bear or not going topic would be profitable for Blue Ridge.