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Allied stationary products

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Learn about Activity Based Costing

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Allied stationary products

  1. 1. Allied StationaryProductsA case study inActivityBasedCosting-You guys know who we are.
  2. 2. TFC Operations $ Distribution Center Customer
  3. 3. Price and Cost A B 4.7%    20.5% $ 7% 
  4. 4. Customer A $ Distribution Center Customer
  5. 5. Customer B $ Distribution Center Customer
  6. 6. Turns out… Profits 60 50 40 30 20 10 0
  7. 7. Look Closely… A B 4.7%    20.5% $ 7% 
  8. 8. ABC A B   $   
  9. 9. Profitability- Customer A vs. Customer B Customer Profitability Analysis Old Method Customer A Customer B Sales 79320 79320 Product Cost -50000 -50000 Service Fees -16100 -16100 Gross Profit 13220 13220 Gross Profit % 17% 17% Activity-Based Analysis Customer A Customer B Sales 79320 79320 Product Cost -50000 -50000 Service Fees -10510 -30093 Gross Profit 18810 -773 Gross Profit % 24% Negative
  10. 10. Profitability Inferences • Weird for a service business: Less service means more profits • A-type customers paying for services that B-type utilize • “Inverse of Insurance” Business Model
  11. 11. Top 15 (Small is bad) (bubble size = contr./ABC) 160 140 120 100 Net 80Sales 60 40 20 0 0 20 40 60 80 100 Product cost
  12. 12. Bottom 8 : Big is bad (bubble size = -contr./ABC) 160 140 120 100 Net 80Sales 60 40 20 0 0 20 40 60 80 100 Product Cost
  13. 13. Y-Values0000000000 0 20 40 60 800
  14. 14. SBP? Value Based Pricing • Remember the value proposition: TFC is about service not the product Customer B needs the service more How do we make money Aircraft maintenance example
  15. 15. True Overhead in Value BasedPricing … Things customer Value Value wouldn’t do w/o TFC
  16. 16. Redefine business model… Price of the form Total Price = + Just-in-time service
  17. 17. Costs taken care… Hourly payroll - admin Data proc.11% Variable warehouse payroll 25% Other Salaries 27% payroll 13% Rent Warehouse 25% Utilities fringes 3% 6% Depreciation Fringe benefits- 4% salaried 3%
  18. 18. JiT Service Pricing More form movement … higher price
  19. 19. We love Customer B $ Distribution Center Customer
  20. 20. Other Recommendations• ASP needs to address rent and warehouse payroll as the number 1 & 2 cost drivers in overhead• Warehouse automation • Eliminates labor costs• Warehouses efficiencies- • Ordering • Transportation for Requisitions• Eliminate Boxes• Charge premium for desktop delivery
  21. 21. Allied StationaryProductsA case study inActivityBasedCosting-You guys know who we are.

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