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Homework Help UK | IB98W0 Management Accounting And Control

The following questions relate to the case study, ATV Distribution Ltd, which was previously made available to you, and the additional information provided below.

Additional information. Ray Davies, the Managing Director of ATV Distribution, has specifically asked for your advice on the reliability of the new customer Segment Profitability Analysis (CSPA) and the Individual Customer Profitability Analysis (ICPA) produced by the Finance Director, Grant Dalton. One issue that worries Ray is the fact that the ICPA report for NR customers (Table 3) shows that one of the three NR customers, House of Fraser, made a negative customer contribution last year of £24,000. Moreover, Ray tells you that Jenny Lomas, the Sales Manager responsible for NR, is about to sign up a new NR customer, 'John Lewis'. Ray introduces you to Jenny and asks her to explain about the potential contract to sell to 'John Lewis' next year.

Jenny explains:

'7his is an exciting opportunity. I om very close to securing a contract to supply John Lewis. I forecast that in their first year John Lewis will sell 5,000 of our LCD TVs and hence generate sales at list prices of £3.5 million. We will probably have to give them o 19% discount on list prices and their COGS would be £2.75 million. They have agreed that they will order and take delivery in bulk and hence will only place one Sales Order per month and require one Delivery per month. That level of activity would generate a total 300Storage Picks per year. As a new customer I will have ta pay close attention to them, and will want to see them frequently to increase the volume of business in year 2. I therefore anticipate needing 18 sales visits over the first year, but less in year 2. To get the business going ATV Distribution would need a fairly hefty advertising spend and so I am budgeting £40,000 for specific, 'John Lewis', advertising in the first year, but I should be able to cut that by 25%in the second year. "

Required:

You have been hired as a consultant to advise the ATV management team in relation to their various business problems. Produce a consultant's style report suitable for the Directors of ATV Distribution ltd. advising them on a suitable approach to customer accounting and balanced performance measurement.


Question 1 -Customer Accounting.

(o) Provide o comparison of the old and new customer segment contributions and customer segment contribution margins (as disclosed in Table 1and Table 2 respectively) and explain the reasons for the key differences reported.

(10 marks)

(b) There was much debate (see page 5 of the case) between directors and managers about the method of a/locating corporate sustaining costs to customer segments in the CSPA produced from the current costing system ( Table 1). However, in the CSPA produced from the new activity-based costing system (Table 2) corporate sustaining costs are not traced to customer segments. Outline your opinion on this issue.

(8 marks)

(c) Utilizing the information on in the Individual Customer Profitability Analysis (Tables 3, 4, & 5) and assuming It Is based on reliable data, advise the Directors what they should do (If anything) about the fo flowing customers:

• OR customer PIXmad.com and LR customer Jones and Sons.

• ORcustomer eTV.co.uk.

• NR customer House of Fraser ond LR customer TVs R Us.

(15 marks)

(d) Prepare an estimate of the flkely first year profitability af the potential new NR customer, Jahn Lewis, discussed by Jenny. Using this estimate, and any other analysis you wish to perform, make recommendations, stating your reasoning, regarding whether ATV should continue to pursue this customer.

(10 marks)

(e) Outline any potential weaknesses of the methodology used for the Individual Customer Profitability Analysis that has so far been produced at ATV (as disclosed in Tables 3, 4, and

5) and suggest possible improvements that could be implemented by ATV.

(8 marks) (/) Describe any further Customer Accounting measures that you believe the management

team of ATV might find useful and explain how they could be used to improve business

performance. (4 marks)

(Question 1 total:55 marks)

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