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ACCT618 Managerial Accounting

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Answers:

What are the services rendered by the distributor to manufacturers and hospitals?

There are various services offered by distributors to both the parties such as manufacturers and hospitals to retain these parties in growing their business. There are two hospitals in the current case are Alpha and beta hospital to which the distributor will provide all the services to steal the attention of all the external users. Different services offer by the distributor includes procurement services which come under the logistics segment of an entity. Logistic and supply department of the business concern plays a significant role in an entity to deliver all the quality oriented services to retain most of the customers with the firm for long span of time. Procurement service provided by the distributor includes warehousing for storing all the products sold by the distributor to the firm. Procurement costs incurred by an entity can get reduces by using just in time method in which distributor can deliver the product directly to the customers without storing in the warehouses which, in turn, saves the money of an entity.

Another services offered by the distributor to the manufacturer and hospital is label all their medical products to reflect the hospital name and pharmaceutical firm’s names on the products. With the help of labels on the products, an individual can use the medicine or medical equipment by following the instructions mention on the label along with the expiry date of the product.

How has the nature of distribution changed over time?

Both the hospital Alpha and beta hospital has similar business operation as they changed their performance evaluation method from customer profitability statement to activity based pricing approach. Basic difference among both these technique is that margin has decided in customer profitability on the basis of total costs but in activity based, margin has decided on the distributor discounts.[1]

What is the value-added by O&M?

Particulars

Alpha

Beta

New Alpha

New beta

Net income

$-4,222

-$17608.575

-$16773.2

-$21669.33

Sales

150000

150000

150000

300000

Value added

-2.81%

-11.73%

-11.18%

-7.22%

Evaluate the impact cost-plus pricing has on distributors, customers and suppliers

Impact of cost plus pricing has different perspectives for different parties such as distributors, customers and suppliers. This pricing is good for distributor as they add their margin along with the total costs incurred by them to charge final price for the customers. It is not good for customers as this option will increase the market retail price of the product as consumers shift to other seller.[2] Suppliers has both positive and negative of using this option in which it is good for showing price margin with the costs and at the same time it is negative in attracting buyers by charging higher margin.

What effect will ABP have on customer behaviour?

Profit is given higher preferences in the ABP option which is not suitable for the consumers as they demand for affordable range products with high quality.

Explain Exhibit 5. How does the pricing matrix work?

In this exhibit, changed figures of sales are there which was generated by Alpha and beta from $150000 to $300000 in beta hospital. Number of orders gets changed from one year to another as the total number of sales order get decreases in Alpha and increases by Beta hospital. The effect of pricing matrix has clearly shown in the results of Alpha and Beta. Sales order has deceases after one year for alpha and increases for beta shows the inclusive of margin.

How do the costs in Exhibit 5 correspond to the costs shown in the customer profitability statement in Exhibit 4?

Costs in exhibit 5 is corresponds to 4 by making changes in different cost driver such as sales orders, lines, deliveries, EDI order’s percentage, emergency orders and vendor’s discounts.

Why doesn’t the matrix comprise all the costs shown in Exhibit 4?

The current matrix contains costs for all the services offered by distributor to manufacturers and hospitals as Activity based pricing has developed on the basis of services delivered by the firm.

What are the obstacles to successful implementation of ABP at Ideal? How would you address these obstacles?

Barriers

  • Expensive
  • Time consuming

Ways to overcome

  • Prioritizing all the expenses incurred in an entity
  • Adopt time management approach

What type of customer will adopt ABP first?

Loyal customer will adopt this approach as the consumer trust on the services provided y the seller.

How difficult or easy is it for O&M’s rivals to adopt ABP?

Rivals of O&M feels difficulty in adopting activity based pricing as adopting this option contains higher risks.

What are the risks associated with ABP for Owens & Minor?

There are various risks involved in this particular option have given below:

  • Fluctuating costs according to different costs drivers
  • Decreasing number of sales order
  • Stable emergency orders
  • Higher costs as compared to net income

Work through the Owens and Minor numerical example posted on Blackboard by filling in the template provided.

Cost Driver

Rate

Alpha     Volume

Beta      Volume

Alpha  Volume

One-Year Later

Beta  Volume

One-Year Later

Number of Orders

 

750

333

400

660

EDI Orders

$       4.5

25%

95%

95%

95%

Non-EDI Orders

$     9.01

75%

5%

5%

5%

Lines

$     0.66

15,000

10,000

11,000

20,000

Deliveries

$ 457.58

12

10

7

10

Accounts Receivable

8.64%/yr

$300,000

$75,000

$75,000

$150,000

Emergency Orders

$        25

20

10

6

6

Shipping and Handling

$       130

12

10

7

10

Product Sales/month

 

$150,000

$150,000

$150,000

$300,000

Cost Plus Margin

 

$22,500

 

--

--

ABP Fees

 

--

--

 

 

Total Monthly Revenue

 

$172,500

$150000

$150000

$150000

Less :COGS

 

$150,000

$150,000

$150,000

$300,000

Add: Vendor Discounts

 

$4,035

$4035

$4,035

$8,070

Monthly Gross Margin

 

$26,535

$4035

$4035

$8070

EDI Order Costs

4.5

$844

$1423.575

$1710

$2822

Non-EDI Order Costs

9.01

$5,068

$150

$180.2

$297.33

Line Costs

0.66

$9,900

$6600

$7260

$13200

Shipping and Handling

130

$1,560

$1300

$910

$1300

Delivery Cost

457.58

$5,491

$4576

$3204

$4576

Emergency Orders

25

$   500

$200

$150

$150

Interest

8.64%

$2,160

$2160

$2160

$2160

Procurement

Direct

$1,486

$1486

$1486

$1486

Labeling

Direct

$1,000

$1000

$1000

$1000

Account Management

Direct

$   991

$991

$991

$991

Occupancy

Direct

$1,007

$1007

$1007

$1007

Group Fees

Direct

$   750

$750

$750

$750

Total Monthly Cost

 

$30,757

$21643.575

$20808.2

$29739.33

Net Operating Profit

 

$-4,222

-$17608.575

-$16773.2

-$21669.33

Cost Plus/Equivalent Cost Plus

 

15%

15%

15%

15%

References

Gao, J. H. and et.al., 2017. Variations in the transport, distribution and budget of 210Pb in sediment over the estuarine and inner shelf areas of the East China Sea due to Changjiang catchment changes. Journal of Geophysical Research: Earth Surface.

Rahimi, R. and Kozak, M., 2017. Impact of Customer Relationship Management on Customer Satisfaction: The Case of a Budget Hotel Chain. Journal of Travel & Tourism Marketing. 34(1). pp.40-51.

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