Jamestown Electric Supply Company Case Study Solution
Are the accounting customer profitability measures provided by the initial customer profitability system positive, negative or neutral..??
The accounting customer profitability measures that is provided by the initial customer profitability system does not provides reasonable results because of the fact that the cost allocated to each customer is not backed by the factual evidence, it should vary on the basis of the number of dollar sales, cost of goods sold and number of deliveries. The unreasonable treatment of cost to each customers is resulted in reduced profits by the side of customers.
Alternate customer profitability system
In underlying assumptions, the reliable customer cost figure and customer revenue is developed, secondly the future downstream cost of customers is estimated and recognized as well.Also, the underlying assumption is different from the initial customer profitability in a way that the different drivers of the customer cost is recognized, which in turn lead management to more accurate reports.Additionally, the categorization differs from the initial customer profitability system on the basis of classifying profitable and unprofitable customers. The customers are categorized based on the most favorable characteristics with greater profit returns. It allows the effective customer grading.
Customer service charges for W&S activities and contribution to Jamestwon profitability by each customer
The customer service charges is calculated for W&S activities by dividing the number of total orders by the order requiring specials services and the per unit cost is resulted in 699.68, 86.11 and 59.20 for Alanson, Boyne and Conway respectively. Also, Alanson, Boyne and Conway contributes $733264.01, 648701.65 and 197427.57 respectively to the Jamestown profitability.
Significant differences in profitability of these three customers using initial customer profitability and newalternate system
Yes, there is a significant difference in the profitability of these three customers while using the initial customer profitability system and the new alternate system. While using the initial customer profitability system, the estimated profitability of Alanson, Boyne and Conway is $450225, $205170 and $55890 while using the new alternate system the estimated profitability of Alanson, Boyne and Conway is 733264.01, 648701.65 and 197427.57.
How might Jamestown alter its treatment of Alanson, Boyne, and Conway to improve overall profitability?
The new alternate system provides the strong basis of calculating the estimated contribution to profitability from each of three customers, because the special service order is calculated for each customers resulting in per unit cost. Since, Alanson orders maximum products from company, the company should give discounts on bulk ordered quantity to encourage the customer due to which the number of orders would reduce and the cost associated with each order would also reduce, hence improve profits. Likewise, the company should encourage Conway customer to make orders by offering discounts and credit to return policy.
Altering its incentive system for management to achieve larger profits and issues in customer profitability system
Evidently, the company should alter its incentive system by shifting all of its sales on the commission base and it should remove the salary system to increase the profitability. This would allow the company to recognize and reward employees.
Additionally, the company would be confronted with various challenges while implementing the customer profitability system such as; the company need to emphasize on what estimates would b required. The decision would likely incur cost that the company would not realize in years to come.It is significant that the analysis of future profitability would take into consideration the multiple time horizons. The company would be influenced in developing the drivers related with customer cost............
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