Assignment Choice #2: Case: Customer Profitability and Ethics (Quantitative) Customer profitability determines how each customer is contributing to the total profitability of a business (Mulhern, 1999). In our case study, KC Corporation manufactures an air-freshening device called GoodAir, which it sells to six merchandising firms. To understand customer profitability (quantitative approach) and ethical issues related to accounting, this paper provides answers to how accountants calculate customer profitability (quantitative approach) and how accountants should act, using a case of KC Corporation.
1. Classify each of the customer-level operating costs as a customer output unit–level, customer batch-level, or customer-sustaining cost. Customer …show more content…
Revenue at list price. This will be the amount of generated from the good purchased using the price list. Therefore, it will be, list price multiplied by the number of goods purchased. We will subtract all the customer level operating cost to get the customer level operating income. Each item of the customer level operating cost of each client will be determined. This will be order taking, delivery, expedited delivery, product handling, restocking, visit to customers and sales commissions. Delivery will be calculated by the number of miles taken multiplied by delivery per mile. Product handling will be calculated by number of units purchased multiplied by cost of handling each unit $1. Visit per customer is standard at $ 125 per customer therefore the customer level operating income will be revenue at list price minus customer level operating …show more content…
The sales people have taken advantage of these and they divide one order into many orders. This makes the company to spend more on paying commission on many orders that were initially one order, costing KC Corporation $588 in profit (the difference between the incomes in requirements 3 and 4.) Therefore, the cost of paying the sales people is increasing, which is unnecessary if the sales people were not taking advantage of the payment policy of the company. The management and accounting departments are not aware of what the sales people are doing. The sales people can make one order to about three small orders which make the company to incur more cost. This behaviour is not ethical and the sale people are not following the code of ethics of any profession (Holm, Kumar & Rohde, 2012). To change this KC should review on its payment policy to the sales people. The company should pay the sales people on the actual number of sales they make from each client. This will be easy to access as the accounts department can check from its receipt top confirm the sales. It will save the business a large amount of money and it will also curb the behaviour of the sales
1. Classify each of the customer-level operating costs as a customer output unit–level, customer batch-level, or customer-sustaining cost. Customer …show more content…
Revenue at list price. This will be the amount of generated from the good purchased using the price list. Therefore, it will be, list price multiplied by the number of goods purchased. We will subtract all the customer level operating cost to get the customer level operating income. Each item of the customer level operating cost of each client will be determined. This will be order taking, delivery, expedited delivery, product handling, restocking, visit to customers and sales commissions. Delivery will be calculated by the number of miles taken multiplied by delivery per mile. Product handling will be calculated by number of units purchased multiplied by cost of handling each unit $1. Visit per customer is standard at $ 125 per customer therefore the customer level operating income will be revenue at list price minus customer level operating …show more content…
The sales people have taken advantage of these and they divide one order into many orders. This makes the company to spend more on paying commission on many orders that were initially one order, costing KC Corporation $588 in profit (the difference between the incomes in requirements 3 and 4.) Therefore, the cost of paying the sales people is increasing, which is unnecessary if the sales people were not taking advantage of the payment policy of the company. The management and accounting departments are not aware of what the sales people are doing. The sales people can make one order to about three small orders which make the company to incur more cost. This behaviour is not ethical and the sale people are not following the code of ethics of any profession (Holm, Kumar & Rohde, 2012). To change this KC should review on its payment policy to the sales people. The company should pay the sales people on the actual number of sales they make from each client. This will be easy to access as the accounts department can check from its receipt top confirm the sales. It will save the business a large amount of money and it will also curb the behaviour of the sales