ACT302: Pricing Decisions and Customer Profitability Analysis Report

This report provides a comprehensive analysis of pricing decisions and customer profitability, focusing on the case of Allied Office Products. The study begins with an introduction to Activity-Based Costing (ABC) and its significance in organizational financial planning. The report calculates ABC-based service costs and distribution service costs for two specific customers, Customer A and Customer B, using data from the provided text and Exhibit 5. The analysis then examines the profitability of these two customers, drawing inferences from the cost calculations. Further, the report assesses the suitability of implementing the Single Exit Price (SEP) pricing system. The report concludes with managerial advice for Allied Office Products regarding the Total Forms Control (TFC) business, supported by the case study's context. The report's structure includes an introduction, calculations, inferences, recommendations, and a conclusion, with a reference list supporting the analysis.

Pricing Decisions and customer profitability analysis
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Table of Contents
Introduction................................................................................................................................3
Using the information in the text and in Exhibit 5, calculate "ABC"-based services costs for
the TFC business........................................................................................................................4
Using your new costing system, calculate distribution services costs for "Customer A" and
"Customer B."............................................................................................................................5
What inference do you draw about the profitability of these two customers?...........................6
Should TFC implement the SEP pricing system?......................................................................7
What managerial advice do you have for allied about the Total Forms Control (TFC)
business?....................................................................................................................................8
Conclusion..................................................................................................................................9
Reference List..........................................................................................................................10
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Introduction
The project will consist of the calculation of the activity based costing that is done by
different organisations. This is a very important process that is in use in the market. This is a
very important method of costing that helps the organisations to work properly. In this
method, only the amount of extra activity are added in the project. This helps the
organisations to solve a lot of problems of finance that occurs in a lot of organisations. These
are vital for the business firms to work properly and execute those plans that are available for
the business firms.
Company Overview
The company that is selected for the research of the project is Allied Office Products. This is
a multinational company that is operated from the United Kingdom. The headquarters of the
company is located in London, United Kingdom. There are more than fifty thousand
employees working under the company. The company Allied Office Products works under
the domain of retail supermarkets. These are very important overview that is provided for the
company. These are very important for the company to work properly.
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Using the information in the text and in Exhibit 5, calculate "ABC"-based services costs
for the TFC business
The use of Activity based costing is very important for the organisation Allied Office
Products. This helps the company to work properly and the calculation is done on the basis of
the activities that are done by the company. These are very important ways of calculating
costing that will give proper results for the company.
Activity Based Costing
Rent 1211
Depreciation 177
Utilities 159
Security 3
Total Storage Expenses 1550
Rent 214
Depreciation 31
Utilities 28
Salaries and Fringes 909
Telephone 96
Taxes/ Insurance 104
Travel/ Entertainment 30
Postage 56
Hourly Payroll and fringes 316
Temp Help 17
Total requisition handling expenses 1801
Variable warehouse pay and fringes 1735
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Travel and entertainment 10
Total Warehouse Activity 1745
Basic Warehouse Stock Selection 761
Pick-Pack activity 734
Desktop Delivery 250
Data Processing Expenses 612
Total 5903
Provided above is the calculation of the costing method for the company Allied Office
Products, where there are two customers that are taken for the research. It can be observed
that there are a number of activities that are performed by the company. The calculation is
done on the basis of the activities that are added. There are four activities that are done. These
are added to find an answer. These are further divided from the gross profit to get to a
specific answer. The activities that are done in this part are the administration cost, the
production cost of the product, the delivery cost that are incurred by the company to deliver
the product to the customer and finally the indirect cost that are incurred on the production of
the material. These are very important for the business firms to work properly on the different
kinds of factors so that these issues are solved by the business firms that do not cause any
kind of problems in the organisation and as well as for the customers those who go to buy the
products. These are vital for the business firms to follow and work accordingly.
5

Using your new costing system, calculate distribution services costs for "Customer A"
and "Customer B."
Activity Based Costing
Rent 1211
Depreciation 177
Utilities 159
Security 3
Total Storage Expenses 1550
Rent 214
Depreciation 31
Utilities 28
Salaries and Fringes 909
Telephone 96
Taxes/ Insurance 104
Travel/ Entertainment 30
Postage 56
Hourly Payroll and fringes 316
Temp Help 17
Total requisition handling expenses 1801
Variable warehouse pay and fringes 1735
Travel and entertainment 10
Total Warehouse Activity 1745
Basic Warehouse Stock Selection 761
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Pick-Pack activity 734
Desktop Delivery 250
Data Processing Expenses 612
Total 5903
Provided above, is the distribution cost of the two customers that are available for the
business firm Allied Office Products. It can be seen that there are number of costs that are
included in the distribution cost. These are important for the business firms to work on. It can
be seen that the distribution costs that are added are administration cost, production cost of
the material, delivery cost associated with the product and the indirect cost that is incurred
over the products. These are very significant for the business firms to work properly so that
the issues are solved by the business firm and there are ample area for explaining the
distribution cost that are associated with the selling of the product.
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What inference do you draw about the profitability of these two customers?
Temp Help 17
Total requisition handling expenses 1801
Variable warehouse pay and fringes 1735
Travel and entertainment 10
Total Warehouse Activity 1745
Basic Warehouse Stock Selection 761
Pick-Pack activity 734
Desktop Delivery 250
Data Processing Expenses 612
Total 5903
The above table shows the profitability of the two customers of Allied Office Products. It can
be observed that the profit from the first customer is zero. This shows that there is a lot of
cost that is incurred by the company in selling the product to customer A. On the contrary,
the profit by selling the product to customer B is six. This shows that the cost of the product
is less than that of the cost of the product that is sold to customer A. This is very important
for them to analyse the difference. The reason behind this is that there are different pricing
strategy for different customers while using the method of activity based costing. The
activities involved in the costing are the same but the cost of each of the items for both the
customers are different. This is bringing in the main difference among the customers of the
organisations.
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Should TFC implement the SEP pricing system?
There is a necessity for the TFC to implement the SEP pricing system. SEP stands for Single
Exit Price. This suggests that there may be any number of customers but the cost of selling
the product for those customers will be same. This is necessary for the business firms to set
one price for the same product. This will give an equal amount of profit for the business. This
is a necessity for the business firm to work on the different structures of the business. These
will help the business firms to work properly so that the issues are solved and there are same
prices for all the customers of the organisation. This brings in a lot of advantages that are to
be followed by the business firm. These are necessary for them to follow and work
accordingly.
It is better for the organisations to have equal pricing strategy for all the customers that will
help them to analyse the price and fix the price in such a way that they get the same amount
of profit from the customers by selling the product at the same price to all the customers. This
will help them to work well in the market. The reason behind this is that the customers are
needed to be provided better service by keeping the price constant. These will help the
business firms to maintain goodwill among the customers and solve a lot of problems
associated with the products. These are such things that takes part in the cost of the product.
These can only be done if the cost for all the activities of the same products are made to be
same. This is the only way by which the cost of the product will become same and the
product can be sold at the same price that will bring in good profit for the organisation.
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What managerial advice do you have for allied about the Total Forms Control (TFC)
business?
There are a number of advices that is necessary for the business firm ti be given. These are
necessary for them to follow so that the issues are reduced by the companies. There are lot of
complains from the business organisation that they cannot earn properly from the market.
Their main reason is the use of the technique of costing. Proper methods of costing needs to
be used by the business firms to get the exact amount of profit. This can be done with the use
of the single exit price, where the organisations fix the price of all the products and sell those
products at that given price. This will give proper amount of return to the organisations that
are in operation in the market. These are the things that are to be followed. The next thing
that is to be done by the organisations is that, they need to fix the cost of production of the
products. This should not change from one customer to the other. This reduces the tension of
getting losses for some customers. These are the vital things that are seen from the use of the
different techniques and these are the advices that can be given to the business firms on the
basis of fixing the price of the products.
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Conclusion
The project consists of the calculations of the different areas that are responsible for the
business firms to follow. There is a necessity for the business firms to undertake a proper
method that allows them to fix the cost of the products so that there is a good amount of
profit from each customers. For a business firm like Allied Office Products, it is not suitable
for the company to have different pricing strategy for different customers. Thus, the company
might face huge amount of loss. So, it is advised to the company to use the system of single
exit price to sell their products to the customers.
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