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1. Activity-Based Customer-Driven Costs

   Suppose that Stillwater Designs has two classes of distributors:JIT distributors and non-JIT distributors. The JIT distributorplaces small, frequent orders, and the non-JIT distributor tends toplace larger, less frequent orders. Both types of distributors arebuying the same product. Stillwater Designs provides the followinginformation about customer-related activities and costs for themost recent quarter:

   	JIT Distributors		Non-JIT Distributors
   Sales orders	1,100		110
   Sales calls	70		70
   Service calls	350		175
   Average order size	850		8,500
   Manufacturing cost/unit	$125		$125
   Customer costs:
   Processing sales orders	$3,130,000
   Selling goods	1,120,000
   Servicing goods	1,050,000
   Total	$5,300,000

   Required:

   1. Calculate the total revenues per distributorcategory, and assign the customer costs to each distributor type byusing revenues as the allocation base. Selling price for one unitis $150. Round calculations to the nearest dollar.

   	JIT		Non-JIT
   Sales (in units)
   Sales	$		$
   Allocation	$		$

   2. Conceptual Connection: Calculate thecustomer cost per distributor type using activity-based costassignments. Round the interim calculations to the nearestdollar.

   	JIT		Non-JIT
   Ordering costs	$		$
   Selling costs	$		$
   Service costs	$		$
   Total	$		$

   For non JIT distributors by how much can the price be decreasedwithout affecting customer profitability? Round your answer to thenearest cent.

   $ per unit

   3. Assume that the JIT distributors are simplyimposing the frequent orders on Stillwater Designs. No formaldiscussion has taken place between JIT customers and StillwaterDesigns regarding the supply of goods on a JIT basis. The salespattern has evolved over time. As an independent consultant, whatwould you suggest to Stillwater Designs' management?

   It sounds like the JIT buyers are switching their inventorycarrying costs to Stillwater Designs without any significantbenefit to Stillwater Designs. Stillwater Designs needsto   prices to reflect the additional demands oncustomer support activities. Furthermore,additional   may be needed to reflect the increasednumber of setups, purchases, and so on, that are likely occurringinside the plant. Stillwater Designs should also immediatelyinitiate discussions with its JIT customers to begin negotiationsfor achieving some of the benefits that a JIT supplier should have,such as   contracts. The benefitsof   contracting may offset most or all of theincreased costs from the additional demands made on otheractivities.