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Managerial Accounting Assignment PDF

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Managerial Accounting
O&M Case Study
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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