Krum Company's product mix has become more diverse over the past few years. Consequently the company undertook an activi

[answerhappygod]

Krum Company S Product Mix Has Become More Diverse Over The Past Few Years Consequently The Company Undertook An Activi 1 (42.8 KiB) Viewed 18 times

Krum Company S Product Mix Has Become More Diverse Over The Past Few Years Consequently The Company Undertook An Activi 2 (43.61 KiB) Viewed 18 times

Krum Company S Product Mix Has Become More Diverse Over The Past Few Years Consequently The Company Undertook An Activi 3 (44.5 KiB) Viewed 18 times

Krum Company's product mix has become more diverse over the past few years. Consequently the company undertook an activity-based costing initiative to develop accurate costs for production, as well as marketing, selling, distribution, and administration. The company set list prices that would provide a profit regardless of whether the customer orders were complex or routine. Nevertheless, profits have been falling. The company's management team decided to examine discounts that had been granted to determine whether these are the reason for poor profit performance. The management team believed that some discounting was necessary to acquire and retain large customers. On deeper investigation, they learned that some of their smaller customers, who were often the most cost conscious, took advantage of every discount or allowance offered. To compare discounts or allowances taken, they compared Customer 1 and Customer 2. (Click the icon to view the comparison.) X More info Management was surprised to leam that customers were taking advantage of a large number of possible discounts or allowances, including the following: 1. Volume discount if 2 or more units are ordered. 1% 2% 2. Pay in full in 5 days. 7% the finance department nitiate the cooperative 3. Cooperative advertising allowance for featuring the company's products in its advertisements. 4% 4. Take a large shipment before the end of the quarter in advance of an expected seasonal increase in demand. no manager 6% 5. Online ordering discount. 5% 6. Rebate on sales during specific promotional periods. O fit or loss by order or by
Customer 1 is a long-time customer with sales of $240,000 at list prices. This customer takes advantage of each discount or allowance listed in the preceding table. Moreover, this customer has been a loyal customer since Krum Company's inception. In appreciation, Krum's sales representative offers free freight, which amounts to 8% of the customer's list-price purchases from Randolph. Customer 2 is a more recently acquired customer with sales of $980,000 at list prices. This customer only takes advantage of items 1, 3, and 5 in the preceding table. Requirements Requirements (a) Compute the total sales discount percentage for Customer 1 and for Customer 2. (b) Why might Krum Company's management team have been unaware of the potentially large total discounts offered to its customers? (c) What advice do you have for Krum Company regarding managing its discounts and allowances? possible This question: 1 point(s) possible Submit quiz team believed that some discounting was necessary to large customers. On deeper investigation, they learned smaller customers, who were often the most cost dvantage of every discount or allowance offered. To s or allowances taken, they compared Customer 1 and h to view the comparison.) X the finance department ent may initiate the cooperative no manager Krum d Conse develo and ad regard profits discou poor p (C For example, the prompt pay may lump all freight costs into advertising allowance, volume sees the complete picture for
over the past few years. The management team believed that some discounting was necessary to CIT Requirement (a) Compute the total sales,discount percentage for Customer 1 and for Customer 2 The total sales discount percentage for Customer 1 is% and the total sales discount percentage for Customer 2 is% Requirement (b) Why might Krum Company's management team have been unaware of the potentially large total discounts offered to its customers? Krum Company's management may have been unaware of the potentially large discounts offered to its customers because the discounts and allowances arise from and are recorded in systems. In addition, the may occur at various times of the year. For example, the prompt payment discount may be recorded by the finance department in may lump all freight costs into a general the finance department department may initiate the cooperative no manager labeled as transportation expenses. The advertising allowance, volume discount allowance, and rebates. With sees the complete picture for individual orders and consequently no one realizes how much revenue loss occurs with individual orders. Requirement (c) What advice do you have for Krum Company regarding managing its discounts and allowances? Once firms become aware of pricing waterfalls leading to undesirably large sales discounts, they can use their activity-based costing systems to as well promotional costs and allowances, to individual orders and customers in order to calculate realized profit or loss by order or by customer. every customer. Furthermore, companies can use the Using this information, companies can periodically on MSDA costs to base salesperson incentives on order and customer profits, not just sales. see p see s see sc see so see sco see SCOR see scor