Ch11_E13CorrectedAns. - CHAPTER 11 STRATEGIC COST...

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CHAPTER 11 STRATEGIC COST MANAGEMENT 11–13 1. Following GAAP is fine for external financial reporting; however, for internal reporting it may not be a good practice. By expensing order-filling costs, management has no indication of the profitability of various customer groups because there is no cost assigned to customers. Knowing the sources of profitability can affect customer mix and product mix decisions. It can also have a significant effect on deciding which customer segments to serve (focusing strategy). 2. The total product consists of all benefits—both tangible and intangible—that a customer receives. One of the benefits is the order-filling service provided by Jazon . Thus, it can be argued that these costs should be product costs, and not assigning them to products undercosts all products. There are more small orders than large (70,000 orders average 600 units), and these small or- ders consume more of the order-filling resources. They should, therefore, re- ceive more of the order-filling costs. Furthermore, since segmenting products is equivalent to segmenting customers, we obtain insight as to how much it is costing to service different customer categories. The average order-filling cost per unit produced is:
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Ch11_E13CorrectedAns. - CHAPTER 11 STRATEGIC COST...

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