Your report to the managing director of PPL division, advising on improvements to the division’s customer profitability analysis, and including at least the following:
(a) Using appropriate ABC cost drivers calculate the activity (burden) rates that may be used for a more accurate allocation of customer costs to customer groups.
(b) Use these activity (burden) rates to re-apportion customer costs between customer groups and restate the customer profit and customer margin percentages.
(c) Provide Thomas with a comparison of the old and new customer profit margins and an explanation of the reasons that key changes have occurred.
(d) Assuming that the new ABC figures are reliable, and that all customers within a particular customer group are similar in relation to their costs to serve, advise Thomas what PPL should do (if anything) about the following groups of customers:
(i) Profitable customers
(ii) Break-even customers
(iii) Unprofitable customers.
(e) Advise Thomas, with full reasoning, on whether or not it is beneficial to allocate corporate costs to customer groups.
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