Advance Managerial Accounting: Cutomer ABM - Essay Example

The first question was which the most profitable customer group . From the activity based costing performed on the workings illustrated on the tables below it can be noted that the priority customer group was the most profitable with a net profit per unit of € 1.54. this was mainly attributed to the fact that it did not have any or little non manufacturing overheads and therefore despite having lowest gross contribution it still remained the most profitable at the set level of production provided by the company.

From the calculations as shown in the tables below it could be noted that not all the customer groups were profitable the most profitable customer group was the priority group which had a net profit per unit of€1.54. the team and shop segments had net profit and net losses per unit of €0.35 and (€1.48) respectively. However, the manufacturing accounts show that all the customer segments were profitable at an average profit per unit of €3.26, €3.44 and €3.61 for the priority, team and shop segments respectively.

The shop segment despite being the most cost effective to manufacture it also attracts the highest number of expenses which makes it unprofitable. Therefore there is need to improve the level of efficiency in the marketing and operations to cut costs and improve the overall margins. Alternatively more focus could be placed on the Priority orders that have less non manufacturing overheads and hence better margin. A price reduction strategy being contemplated by the company requires that the firm finds more cost effective ways of running operations without compromising on the quality of the products.

This cost might cause an increase in sales and thus improve profitability despite reduction in the operating profit margin. From the cost card above it can be noted that the net profit per unit is €2.69 which is above all other current male t-shirt