Ch 17 MIDTERM 2 Flashcards
What is the stand-alone revenue allocation method?
This method uses product-specific information (like selling prices or manufacturing costs) to allocate the total revenue from a bundled product to its individual components.
What are the possible allocation bases for the stand-alone revenue allocation method?
sp
unit manufacturing costs
physical units
total product line revenues
What is a bundled product?
A bundled product is a package of two or more products or services sold together at a single price. Individual components may also be sold separately at their own prices.
How are revenues allocated in the stand-alone revenue allocation method?
based on the relative value or price of each product within the bundle.
What is the incremental revenue-allocation method?
This method ranks products in a bundle by importance or value and allocates revenue based on that ranking.
How does the incremental revenue-allocation method work?
The first-ranked product receives the most revenue allocation, followed by the second-ranked, and so on.
What are the five shared cost categories in an ABC system when the customer is the cost object?
Customer output unit-level costs 2) Customer batch-level costs 3) Customer-sustaining costs 4) Distribution channel costs 5) Facility/corporate sustaining costs.
How are customer output unit-level costs defined in an ABC system?
Costs that are incurred to sell each individual unit of a product to a customer.
What are customer-sustaining costs in an ABC system?
Costs that support individual customers, regardless of the number of units sold.
What are facility/corporate sustaining costs in an ABC system?
Costs that cannot be traced to individual customers or distribution channels, like overhead costs.
What should a company track when offering price discounts to customers?
The company should track discounts by customer and salesperson to assess their impact on overall profitability.
How can customer profitability analysis help in decision-making?
It provides insights into which customers are profitable and which ones are not, helping businesses make better pricing and sales decisions.
What does customer profitability analysis focus on?
It focuses on short-term and long-term profitability, customer retention, and growth potential.
What does a short-term profitability analysis focus on?
It focuses on immediate revenue generated from customers.
What does long-term profitability analysis focus on?
It evaluates the potential for ongoing customer relationships, future sales, and retention.
Why should discounts be analyzed in customer profitability analysis?
To understand the trade-off between offering discounts and the potential long-term profitability of customers.
What is the static-budget variance?
It is the difference between the actual result and the original, static budgeted amount.
What is the flexible-budget variance?
It is the difference between the actual result and the flexible-budgeted amount, which is based on the actual level of output.
What is the sales-volume variance?
It is the difference between the actual sales volume and the budgeted sales volume, measuring the impact on contribution margin.
What is the sales-mix variance?
It measures the effect on the contribution margin when the actual sales mix differs from the budgeted sales mix.
What is the sales-quantity variance?
It measures the effect on the contribution margin due to a change in the total number of units sold, while keeping the sales mix constant.
hat is the purpose of contribution margin variance analysis?
It helps determine how much of the variance in profits is due to changes in sales volume, sales mix, or prices.
How do you calculate the sales-volume contribution margin variance?
It is calculated by multiplying the difference between actual and budgeted sales quantity by the budgeted contribution margin per unit.
How do you calculate the sales-mix contribution margin variance?
It is calculated by comparing the contribution margin of the actual sales mix to the budgeted sales mix.
How do you calculate the sales-quantity contribution margin variance?
It is calculated by comparing the budgeted contribution margin of actual units sold with the budgeted contribution margin of the expected units.
What is market-share variance?
It measures the difference between actual market share and budgeted market share, based on the market’s total size and the budgeted contribution margin.
What is market-size variance?
It measures the difference between actual market size and budgeted market size, showing how changes in the market affect operating income.
Why is tracking profitability by customer important?
It helps a company identify which customers generate more profit and which ones may be costing more to serve than they return in revenue.
What insights can be drawn from customer profitability analysis?
It shows why differences in customer profitability exist, allowing businesses to adjust pricing, product offerings, or service levels.
What factors should you consider when deciding whether to drop or add customers?
Consider profitability, customer loyalty, retention likelihood, growth potential, and strategic importance.
When should a company consider dropping a customer?
When the customer is consistently unprofitable or when the cost to serve them outweighs the potential for revenue.
When should a company consider adding a new customer?
When a new customer presents the opportunity for profitable long-term relationships or when there is untapped potential in a profitable segment
hat is a customer profitability profile?
A customer profitability profile shows how much profit each customer contributes, based on the revenue generated and the costs of serving them
How does customer retention affect profitability?
Retaining profitable customers reduces acquisition costs and can increase lifetime value through repeat business.
What does a positive contribution margin variance indicate?
It indicates that the company is earning more profit from its sales than budgeted, likely due to higher volume or better sales mix.
