Blue Ridge Case – Activity Based Costing (ABC) Essay

1 ) Profitableness Analysis:

Blue Ridge Large Medium Small Total

Gross saless $ 308. 762. 00 $ 183. 744. 00 $ 318. 024. 00 $ 810. 530. 00

Manufacturing Costss $ 112. 552. 70 $ 72. 164. 09 $ 162. 864. 09 $ 347. 580. 88

Gross saless and Administration Costs $ 78. 303. 47 $ 50. 790. 54 $ 156. 805. 99 $ 285. 900. 00

Entire Costs $ 190. 856. 16 $ 122. 954. 63 $ 319. 670. 08 $ 633. 480. 88

Cost as % Gross saless 61. 81 % 66. 92 % 100. 52 % 78. 16 %

Net income $ 117. 905. 84 $ 60. 789. 37 ( $ 1. 646. 08 ) $ 177. 049. 12

Net income Margin 38. 19 % 33. 08 % -0. 52 % 21. 84 %

Note: For elaborate computations please cite attached papers.

2 ) Define action stairss for Blue Ridge based on the analysis:

The above client profitableness analysis indicates that the little clients have a negative net income border. As this specific client base histories for 40 % of Blue Ridges entire gross revenues volume we recommend the undermentioned action stairss be taken in order to increase their profitableness:

* Develop an on line/electronic ordination system for clients in order to extinguish the high costs associated with come ining purchase orders by Blue Ridge employees. Presently this represents 14. 56 % of entire costs with 12. 23 % of entire costs allocated to little clients.

* Develop an electronic payment system for little clients. where payments are wired straight into Blue Ridges bank history before the order is processed and shipped. Currently recognition cheques for little clients represent 1 % of entire costs.

* Study the effects on monetary value additions for little clients. Currently. transportation costs for little clients represent 4. 14 % of the entire costs. increasing the monetary value for little clients could assist countervail the transportation costs.

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* Conduct a survey on little client orders to assist find if a minimal order demand can assist extinguish the costs associated with transporting without giving the high volume.

* Invest in new inking engineering in order to assist warrant additions in monetary values. The investing should extinguish their client ailments and increase their demand.

* Determine the costs associated with puting in a higher quality towel and align with an appropriate gross revenues scheme.

* Determine if advertisement costs are being decently allocated.

* Study the effects of implementing an inducement plan for the independent industries who achieve a certain gross revenues volume.

3 ) Discuss the advantages and disadvantages of this client profitableness system. Did Blue Ridge define the right activities?

Advantages:

* The system provides directors with an penetration into why differences exist in the operating incomes earned from different clients.

* The system enables directors to find profitableness degrees ( net income parts ) of specific client groups and high spots the costs conveyable to each client.

* The system allocates costs of activities that support single client groups to help in finding cost decrease schemes.

* The System focuses on net income instead than turnover.

* The system allocates the relevant costs associated with each client.

Disadvantages:

* The system may motivate directors to do speedy determination such as firing clients. alternatively of implementing cost cutting enterprises.

* The system focuses to a great extent on the different types of clients instead than on the different merchandises.

* The system does non supply elaborate information on the order size and frequence for each single company within their client group.

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* The system does non concentrate on client behaviour such as trueness and future growing forms.

* The system does non enable directors to find if monetary value discounting will promote increased purchases while minimising net income eroding.

In decision Blue Ridge defined the right activities ; nevertheless they might desire to see carry oning a merchandise profitableness analysis. This will enable them to pull off the merchandise mix more expeditiously and place future cost film editing in enterprises. In add-on. we fell this would be another valuable exercising in finding conditions or non traveling national would be profitable for Blue Ridge.