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BLUE Co. makes a product called Y1. The product is manufactured in Division A when ordered by customers, and therefore BLUE holds no inventory of Y1. Customers pick up their orders, so BLUE incurs costs to store the products until they are picked up. Within ten days of pickup, customers may return units of Y1 to be exchanged or repaired free of charge. Manufacturing cost of Y1 is $120. BLUE operates four divisions: A,B,C and D. Corporate costs of BLUE, such as executive salaries and corporate headquarters costs, are $170,000. Sales for all divisions are equal. Divisions A and D employ 10 people each, while divisions B, C employ 40 people each. The price of Y1 is $220 per unit. Division costs, such as the VP of Operations for all divisions, and the sales manager for all divisions, are $90,000. The product is packed in cases of 20.
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Additional costs associated with the customers are as follows.
Order taking: $400 per order
Product Handling: $10 per case
Warehouse Storage: $50 per day
Expedited Processing: $500 per rush order
Exchange and Repair Cost: $50 per unit
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Information regarding BLUE’s customers is:
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A
B
C
D
E
Units Purchased
5,000
2,400
1,200
4,000
8,000
Discounts
20%
0%
20%
0%
10%
Number of Rush Orders
0
4
0
0
10
Days in Warehouse
26
32
0
24
240
Number of Orders
20
24
96
32
24
Units Repaired/Exchanged
0
60
10
40
190
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1) Calculate the customer level operating income for each customer using all revenues and expenses directly related to each customer. (show each revenue and expense item in excel analysis)
2) Allocation division costs to each division using division sales, and to each customer within Division A using each customer’s Net Revenue (i.e. Sales less discount).
3) Allocate corporate costs to each division using number of divisional employees, and to each customer within Division A using their customer level operating income as the allocation base.
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