250_Notes_5B

250_Notes_5B - o 80% of profits come from 20% of customers

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ACCT 250 – ACCOUNTING FOR DECISION MAKING NOTES – CHAPTER 5B SPRING 2008 SUMMARY Here we examine how ABC information be extended for managerial action, an area called Activity Based Management (ABM) which includes customer profitability analysis NOTES 1) Activity based management ABC improves the accuracy of product cost information ABM uses ABC info. to improve profitability through a variety of tools a) Value-Added Analysis High-value activities contribute in a significant way to: o Customer value or satisfaction o Organizational need Low-value activities contribute little or nothing Goal is to reduce or eliminate low-value activities Example: E5-42 on page# 151 2) Customer profitability analysis The 80/20 rule of customer profitability
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Unformatted text preview: o 80% of profits come from 20% of customers c10d469159acce7ccb49a0fb8bcee976a75749ca.doc PAGE 1 OF 2 ACCT 250 ACCOUNTING FOR DECISION MAKING NOTES CHAPTER 5B SPRING 2008 o 20% of customers are actually unprofitable a) Customer types b) How do we do it? Use ABC as weve learned it to calculate the cost of product sold to customer Extend ABC to period costs determine costs of serving customer Calculate customer profit: Sales less ABC COGS less: ABC service costs Robust example on pages 139 to 141 c) Why do it? Identify profitable customers Identify unprofitable customers Customer life-time value (CLV) c10d469159acce7ccb49a0fb8bcee976a75749ca.doc PAGE 2 OF 2...
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This note was uploaded on 04/18/2008 for the course ACCTG 250 taught by Professor Rabe during the Spring '08 term at Luther.

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250_Notes_5B - o 80% of profits come from 20% of customers

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