© 2012 pearson prentice hall. all rights reserved. customer profitability analysis and...
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© 2012 Pearson Prentice Hall. All rights reserved.
Customer Profitability Analysisand Sales-Variance Analysis
© 2012 Pearson Prentice Hall. All rights reserved.
Customer Revenues and Customer Costs
Customer-profitability analysis is the reporting and analysis of revenues earned from customers and costs incurred to earn those revenues.
An analysis of customer differences in revenues and costs can provide insight into why differences exist in the operating income earned from different customers.
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Customer RevenuesPrice discounting is the reduction of selling prices
to encourage increases in customer purchases.Lower sales price is a trade-off for larger sales
volumes.Discounts should be tracked by customer and
salesperson.
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Customer Cost AnalysisCustomer cost hierarchy categorizes costs
related to customers into different cost pools on the basis of different: Types of drivers Cost-allocation bases Degrees of difficulty in determining cause-and-
effect or benefits-received relationships
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Customer Cost Hierarchy Example1. Customer output unit-level costs2. Customer batch-level costs3. Customer-sustaining costs4. Distribution-channel costs5. Corporate-sustaining costs
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Other Factors in Evaluating Customer Profitability
Likelihood of customer retentionPotential for sales growthLong-run customer profitabilityIncreases in overall demand from having
well-known customersAbility to learn from customers
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Sales VariancesLevel 1: Static-budget variance—the
difference between an actual result and the static-budgeted amount
Level 2: Flexible-budget variance—the difference between an actual result and the flexible-budgeted amount
Level 2: Sales-volume varianceLevel 3: Sales-quantity varianceLevel 3: Sales-mix variance
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Sales-Mix VarianceMeasures shifts between selling more or
less of higher or lower profitable products
Budgeted Sales-Mix
Percentage
Actual Sales-Mix Percentage
XBudgeted
Contribution Margin per Unit
Sales-Mix Variance =
Actual Units of
All Products
Sold
X
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Sales-Quantity Variance
Budgeted Units of all
Products Sold
Actual Units of All Products Sold
Budgeted Contribution
Margin per Unit
Sales-Quantity Variance
=
Budgeted Sales-Mix
PercentageX X
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Flexible-Budget and Sales-Volume Variances Illustrated
© 2012 Pearson Prentice Hall. All rights reserved.
Sales-Mix and Sales–Quantity Variances Illustrated