Managerial Accounting O&M Case Study Name Institution 1.Question One First, distributors help manufacturers to ship large quantities of products to their customers. Second, hospitals do not want to incur the costs associated with warehousing. Therefore, distributors manage large materials for the customers. 1.1.Question One (a) The roles played by distributors have changed over time. Traditionally, distributors were required to; store and manage products on behalf of manufacturers, break bulk delivered by manufacturers, send sales information to the manufacturers, offer credit sales to customers, and monitor contracts and pricing. Under the new roles, distributors are required to; make more frequent and smaller deliveries to the hospitals, offer logistic management, make emergency supplies, offer kits to end users, and offer useful information to hospitals. 1.2.Question one (b) The proposed Activity-based pricing will add value to both customers and manufacturers. O&M will offer an enhanced inventory management system to the hospitals while improving the ability of the manufacturers to cut their operating cost.
2.Question Two Customers: Cost plus pricing allows customers to demand service quality without paying additional costs associated with their services. The cost to manage and bulk break the inventory to the quantities required by the customers shift to the distributors. Cost-plus pricing cause conflict between what customers want and what distributors are willing to offer. Distributors: Cost plus pricing forced distributors to offer low-quality services to maintain; a) their operating cost as a manageable level and b) the relationship with customers. Manufacturers: They could ship products/ inventories directly to the hospitals to maintain a low price without involving the distributors. 3.Question Three Customers are cost sensitive; they prefer a high level of service quality at low cost. On the other hand, O&M seek to use ABP to connect its pricing strategy to the level of services provided to the customers. The customers are expected to keep the expenditures associated with inventory ordering at the minimum level. Therefore, customers will only make orders there is a real need to. Customers seek a higher service level will have to pay a higher price to O&M. ABP will help hospitals the level of services received from O&M at a lower cost in the long run. 4.Question Four The pricing matrix comprises two cost drivers: the number of purchase orders per month and the number of lines per purchase order. The two drivers will help O&M to determine the activity fee associated with each customer's order.
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