Prof. Peggy O’ Kelly
Johnson Beverage Case
1. Refer to the notes with respect to the meeting (page 2 of the case). What if you
were the management at Johnson Beverage, Inc. and you were presented with the
possibility of having to negotiate a lower price with Super Saver. What are at least
three possible reasons that you can think of that allows your competitor to
approach this account with a lower price but you are reluctant to do so? Answer:
First, they have a smaller company size and Supper Saver is their potential customer.
2. Use the information in the case related to activities and costs to develop an
activity-based cost system for JBI to use for customer service cost allocation.
Calculate allocation rates for each type of customer service activity. (Assume the
costs related to expediting deliveries are overtime and scheduling costs and are
separate from the costs associated with delivering the product.) Answer:
Area of activity Total ($) Allocation Rate
Product Handling 672,000 672,000/800,000=$0.84/case
Talking Orders from customers 100,000 100,000/500=$200/order Delivering the Product 140,000 140,000/4,480*10=$3.125/mile Expediting Deliveries 198,000 198,000/25,000=$7.92/delivery Sales visits to customers 90,000 90,000/360=$250/visit
3. Using the allocation rates from question (1) above, calculate the amount of customer profit (as a percentage of revenues) for each of the four customers (Saver Superstore, Oscar’s Odd Lots, Midwellen Supermarket, and Downtown Retail).
; Saver Superstore:
; Oscar’s Odd Lots:
; Midwellen Supermarket:
; Downtown Retail:
4. Compare the allocation of the estimated customer services costs you calculated using an activity-based cost system to the estimated costs using the current system of allocating customer service costs. What causes the different costing methods to produce different results for each customer? Be specific.
5. Which costing system would you recommend Johnson Beverage, Inc, adopt? Why?
6. Based on your analysis, make at least two recommendations for Johnson Beverage Inc. to consider. Support your recommendation with financial analysis along with other qualitative considerations as a result of your recommendation. (Do not just make a suggestion without backing it up with quantitative and qualitative analysis.)