Question

across Jigyasa India Ltd. (JIL) has 30 retail store sold be hired by the JIL. Costs per month of JIL are as follows: 1,5231 Total 2.07.12 1,7,73 country. Mainly three products namely 'Butter Jelly', 'Fruits & Nuts' and 'Icy Cool' are s released from the warehouse to the retail stores as per requisition raised by the stores. Good these retail stores. JIL maintains stocks for all retail stores in a centralised warehouse. Good transported to the stores through two types of vans i.e. normal and refrigerated. These vans o products sold through Fruity & Sweety retail stores rather than traditional method of calculating The Chief Financial Manager asked his Finance managers to calculate profitability based on the The following information regarding retail stores are gathered: Warehouse Costs: Labour & Staff Costs Refrigeration Costs Material Handling Costs Head Office Cost: Salary & Wages to Head Office Staff Office Administration Costs Total Retail Stores Costs: Labour Related Costs Refrigeration Costs Other Costs Total Average transportation cost of JIL per trip to any retail stores are as follows: Normal Van Refrigerated Van profitability. Butter Jelly Fruits & Nuts Icy Cool 42 28 40 300 144 18,000 4,608 1.5 33.00 1,09,00 1,89.00 72 1,152 0.5 2 No. of Cartons per cubic metre (m3) No. of Items per cartons (units) Sales per month (units) Time in Warehouse (in months) Time in Retail Stores (in months) Selling Price per unit (3) 84 Purchase Price per unit (3) 34 Butter Jelly and Icy-Cool are required to be kept under refrigerated conditions. Additional information: 42 26 76 22 Total Volume of All Goods Sold per month Total Volume of Refrigerated Goods Sold per month Carrying Volume of each van 40,000 m3 25,000 m3 64 m3 Required CALCULATE the Profit per unit using Direct Product Profitability (DPP) method.

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Answer 1

Gross Profit Cost Related Refrigerated Goods with General Costs () 27,000 1,52,000 Total 28,000 55,000 40,000 m3 1.38 1,52,000 25,000 m3 6.08 Total Cost (0) Time in Warehouse 7.46 Butter Jelly 2.07 3.73 Direct Product Profitability (DPP) Statement y Transportation Costs encouraging the more profitable guests. (Amount in 27 Butter Jelly Fruits & Nuts Icy Cool Selling Price per unit 84.00 42.00 26.00 Less: Purchase Price per unit 76.00 34.00 22.00 ...(A) 8.00 8.00 4.00 Direct Product Costs: Warehouse Costs per m3 [W.N.-1] 7.46 2.07 3.73 Retail Stores Costs per m3 [W.N.-2] 6.36 4.00 6.36 Transportation Costs (W.N.-3) 76.56 50.00 76.56 Total DPP costs per m3 90.38 56.07 86.65 Items per m3 [W.N.-4) 12,600 4,032 2,880 Cost per item ...(B) 0.007 0.014 0.030 Direct Product Profit ...(A) – (B) 7.993 7.986 3.97 working Notes (1) Warehouse Related Costs Labour & Staff Costs Refrigeration Costs Material Handling Costs Volume of Goods Sold Cost per m3 per month Cost per må per Products month (37) 7.46 1 Month (1.38 +6.08) 1.38 Fruits & Nuts 1.5 Months 7.46 Icy-cool 0.5 Months (1.38 + 6.08) (2) Retail Stores Related Costs General Costs Cost Related with (33 Refrigerated Goods (0) Labour Related Costs 33,000 Refrigeration Costs 1,09,000 Other Costs 47,000 Total 80,000 1,09,000 Volume of Goods Sold 40,000 m3 25,000 m3 Cost per m3 per month 2.00 4.36 Products Time in Retail Cost per Stores month 1 Month 76.36 (72.00 + 34.36) Fruits & Nuts 2 Months 12.00 Icy-Cool 1 Month 76.36 (72.00 + 84.36) Normal Van Refrigeratou Van Costs Costs 13.200 7.900 50.00 576.56 No. of No. of items per No. of Items per m Cartons (m) Cartons (units) 42 300 12.600 28 144 40 72 Customer Profitability Analysis in many organisations it is just as important to cost customers as it is to cost products. Different customers or groups of customers differ in their profitability. This is a relatively new technique that ABC makes possible because it creates cost pools for activities. Customers use some activities but not all, and different groups of customers have different 'activity profiles'. Service organisations, such as a bank or a hotel, in particular need to cost customers. A bank's activities for a customer will include the following types of activities: Withdrawal of cash Unauthorised overdraft Request for a statement Stopping a cheque Returning a cheque because of insufficient funds Different customers or categories of customers will each use different amounts of these activities and so customer profitability profiles can be built up, and customers can be charged according to the cost to serve them. Á hotel may have activities that are provided for specific types of customers, such as well laid-out gardens, a swimming pool and a bar. Older guests may appreciate and use the garden, families use the swimming pool and business guests use the bar. f the activities are charged to the relevant guests a correct cost per bed occupied can be calculated for this type of category. This will show the relative profitability and lead to strategies for per m3 Total Cost Butter Jelly 76.36 14.00 76.36 Oost per trip Volume of Van Cost per m' per trip No. of Items per m Products Butter Jelly Fruits & Nuts (42 300) 4,032 (29 144) 2.880 (40 * 72) Icy - Cool . .

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