Cost Allocation, Costumer-Profitability Analysis
Customer-profitability analysis is the reporting and assessment
of revenues earned from customers and the costs incurred to
earn those revenues. An analysis of customer differences in
revenues and costs reveals why differences exist in the
operating income earned from different customers. Managers
use this information to ensure that customers making large
contributions to the operating income of a company receive a
high level of attention from the company and that loss-making
customers do not use more resources than the revenues they
provide.
Customer Cost Analysis
A price discount is the reduction in selling price below list
selling price to encourage customers to purchase more
quantities. Companies that record only the final invoice
price in their information system cannot readily track the
magnitude of their price discounting.
Customer revenues are one element of customer
profitability. The other, equally important element is the
cost of acquiring, serving, and retaining customers.
Customer-Cost Analysis
A customer-cost hierarchy categorizes costs related to
customers into different cost pools on the basis of different
types of cost drivers, or cost-allocation bases, or different
degrees of difficulty in determining cause-and-effect or
benefits-received relationships.
1. Customer output unit-level costs—costs of activities to
sell each unit
Customer-profitability analysis is the reporting and assessment
of revenues earned from customers and the costs incurred to
earn those revenues. An analysis of customer differences in
revenues and costs reveals why differences exist in the
operating income earned from different customers. Managers
use this information to ensure that customers making large
contributions to the operating income of a company receive a
high level of attention from the company and that loss-making
customers do not use more resources than the revenues they
provide.
Customer Cost Analysis
A price discount is the reduction in selling price below list
selling price to encourage customers to purchase more
quantities. Companies that record only the final invoice
price in their information system cannot readily track the
magnitude of their price discounting.
Customer revenues are one element of customer
profitability. The other, equally important element is the
cost of acquiring, serving, and retaining customers.
Customer-Cost Analysis
A customer-cost hierarchy categorizes costs related to
customers into different cost pools on the basis of different
types of cost drivers, or cost-allocation bases, or different
degrees of difficulty in determining cause-and-effect or
benefits-received relationships.
1. Customer output unit-level costs—costs of activities to
sell each unit
