Blue Ridge Case †Activity Based Costing (ABC) Essay

1) increaseability Analysis ghastly Ridge Large intermediate Small TotalSales $308,762.00 $183,744.00 $318,024.00 $810,530.00Manufacturing be $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%Note For detailed calculations please reference attached document.2) check go through steps for Blue Ridge based on the digestThe above node advantageousness analysis indicates that the little(a) customers have a negative boodle margin. As this specific customer base accounts for 40% of Blue Ridges fundamental sales volume we recommend the following action steps be taken in shape to increase their positivity* Develop an on line/electronic placeing system for customers in order to eliminate the high be associated with entering purchase orders by Blue Ridge employees. Currently this represents 14.56% of total follow with 12.23% of total be allocated to small customers.* Develop an electronic payment system for small customers, where payments atomic number 18 wired directly into Blue Ridges bank account before the order is processed and shipped. Currently credit checks for small customers represent1% of total be.* Study the effects on price increases for small customers. Currently, shipping costs for small customers represent 4.14% of the total costs, increasing the price for small customers could dish up offset the shipping costs.* Conduct a study on small customer orders to help determine if a minimum order essential can help eliminate the costs associated with shipping without sacrificing the high volume.* secern in new inking technology in order to help relinquish increases in prices. The investment should eliminate their customer complaints and increase their demand.* Determine the c osts associated with investing in a higher quality towel and correct with an appropriate sales strategy.* Determine if advertising costs are beingness properly allocated.* Study the effects of implementing an incentive program for the independent manufactures who pass a certain 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 insight into why differences live on in the operating incomes earned from variant customers.* The system modifys 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 aid in determining cost reduction strategies.* The System focuses on profit rather than turnover.* The system allocates the applicable costs associated with each customer.Disadv antages* The system may prompt managers to make speedy decision such as firing customers, instead of implementing cost rude(a) 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 frequency for each individual company within their customer group.* The system does not focus on customer behavior such as loyalty and future growth patterns.* The system does not enable managers to determine if price discounting allow encourage increased purchases while minimizing profit erosion.In conclusion Blue Ridge defined the right activities however they might want to consider conducting a product profitability analysis. This will enable them to manage the product mix more efficiently and identify future cost cutting in initiatives. In addition, we fell this would be another valuable exercise in determining weather or not going national would be profitable for Blue Ridge.