Question 1

Many companies trace marketing,sales,distribution,and administration costs to customers to accurately measure customer profitability.

Accepted Answer

Many companies do not trace marketing, sales, distribution, and administration costs to customers to accurately measure customer profitability.

Question 2

Low cost to serve customers:
A)have low order quantities.
B)have large amounts of post sales support.
C)order standard products.
D)have customized delivery.

Accepted Answer

Ordering standard products allows for more streamlined and efficient processes, reducing costs for both the company and the customer. Customized delivery and large amounts of post sales support can increase costs, while low order quantities may not be feasible for the company to maintain profitability.

Question 3

Measuring customer profitability can be accomplished through an activity based costing study.

Accepted Answer

Activity based costing involves allocating costs to customer segments based on specific activities that they require. By understanding the costs associated with serving each customer, it is possible to calculate customer profitability.

Question 4

Many companies quantify their customer relationships by using nonfinancial metrics on satisfaction and loyalty.

Accepted Answer

Many companies use nonfinancial metrics such as customer satisfaction and loyalty to measure their customer relationships.

Question 5

Customer financial performance:
A)are best measured with financial metrics.
B)are reflected on the balanced scorecard as part of the learning and growth perspective.
C)can be improved by offering special features, and highly responsive customer service.
D)is improved by focusing on a combination of financial and nonfinancial metrics.

Accepted Answer

Customer financial performance can be improved by focusing on a combination of financial and nonfinancial metrics. While financial metrics such as revenue and profitability are important, it is also necessary to consider nonfinancial metrics such as customer satisfaction and retention rates. Offering special features and highly responsive customer service can improve customer satisfaction and in turn, lead to increased revenue and profitability. Therefore, a combination of financial and nonfinancial metrics should be used to measure and improve customer financial performance.

Question 6

High cost to serve customers:
A)have high order quantities.
B)have large amounts of post sales support.
C)order standard products.
D)have little to no pre-sales support.

Accepted Answer

Large amounts of post sales support require resources and time, which can increase the cost of serving a customer. The other options do not necessarily lead to high costs of serving customers.

Question 7

The pricing waterfall charts revenue leaks from list price caused by discounts and allowances used to gain customer loyalty.

Accepted Answer

The pricing waterfall model is used to identify revenue leaks caused by discounts and allowances given to customers in order to maintain their loyalty.

Question 8

MSDA expenses as a percentage of sales is an effective way to measure customer profitability.

Accepted Answer

Using MSDA as a percentage of sales is a form of traditional costing and may lead to some customers being overcosted and other customers being undercosted. ABC analysis is a more effective approach.

Question 9

Marketing,selling,distribution,and administrative expenses:
A)can be traced through causal relationships to products.
B)are independent of volume and product mix.
C)are usually incurred through a single distribution channel.
D)do not work well with activity based costing.

Accepted Answer

Marketing, selling, distribution, and administrative expenses are generally not directly related to products and vary with the volume and product mix. Therefore, choice A is incorrect. These expenses can be incurred through various channels, and it is not necessary that they are incurred through a single distribution channel. Hence, choice C is incorrect. Activity based costing can be used to determine the costs of these expenses but may require more detailed analysis. Therefore, choice D is also incorrect.

Question 10

Companies should avoid high cost-to-serve customers because they are unprofitable.

Accepted Answer

Companies should not necessarily avoid high cost-to-serve customers. Activity Based Costing can be used to charge prices high enough to cover the costs of these customers.

Question 11

Brent Company's cost system assigns MSDA expenses to customers using a rate of 33% of sales revenue.The new CFO has discovered that Brent's customers differ greatly in their ordering patterns and interaction with Brent's sales force.Because the CFO believes Brent's cost system does not accurately assign MSDA expenses to customers,he developed an ABC system and gathered the following information.
  
Required:
(a)Using the current cost system's approach of assigning MSDA expenses to customers using a rate of 33% of sales revenue,determine the operating profit associated with Austin and with Brooke.
(b)Using the activity-based costing information provided,determine the operating profit associated with Austin and with Brooke.
(c)Which of the two methods produces more accurate assignments of MSDA expenses to customers? Explain.

Accepted Answer

The answer of Brent Company's cost system assigns MSDA expenses...

Question 12

Discuss the issues related to excessive focus on nonfinancial customer metrics such as customer loyalty and satisfaction.

Accepted Answer

The answer of Discuss the issues related to excessive focus...

Question 13

The 80/20 rules states that the top 20% of customers generate 80% of revenues.

Accepted Answer

This is the statement of the 80/20 rule, also known as the Pareto principle.

Question 14

The 40-1 rule demonstrates that the top customers generate revenues at a rate of 40-1 over all other customers.

Accepted Answer

The 40-1 rule demonstrates that the lowest volume 40% of products and customers generates only 1% of sales.

Question 15

Low cost-to-serve customers order in smaller quantities.

Accepted Answer

Low cost-to-serve customers order in higher quantities.

Question 16

Customized delivery is a characteristic of a high cost-to-serve customer.

Accepted Answer

High cost-to-serve customers are those who have unique requirements and demand a higher level of service customization. As a result, customized delivery becomes a necessary feature for catering to their specific needs, which increases the overall cost of serving these customers.

Question 17

Customer profitability:
A)is reflected by gross margin.
B)are most accurately measured using traditional costing.
C)are most accurately measured using activity based costing.
D)are most accurately measured using a combination of traditional costing and activity based costing.

Accepted Answer

Customer profitability can be most accurately measured using activity based costing, which focuses on the activities that drive costs and the resources used by those activities. Traditional costing may not accurately allocate costs to specific customers or products, while a combination of traditional and activity based costing may be too complex and time consuming. Gross margin alone does not provide a complete picture of customer profitability as it does not consider all costs associated with serving a customer.

Question 18

Marketing,selling,distribution,and administrative expenses are dependent on the volume and mix of products that the company produces.

Accepted Answer

Marketing, selling, distribution, and administrative expenses are independent of the volume and mix of products that the company produces.

Question 19

Many costs of marketing,selling,and distribution expenses are incurred not to support individual products or product lines,but rather to support customers,market segments or distribution channels.

Accepted Answer

It is true that many costs of marketing, selling, and distribution expenses are incurred to support customers, market segments, or distribution channels, rather than individual products or product lines. This is because companies need to build relationships with their customers and support their preferred distribution channels in order to effectively market and sell their products.

Question 20

One option to transform breakeven or loss customers into profitable customers is to use more discipline in granting discounts and allowances.

Accepted Answer

By being more disciplined in granting discounts and allowances, businesses can avoid giving away too much profit margin and potentially turn breakeven or loss customers into profitable ones. This requires careful analysis of customer behavior and needs, as well as clear communication and negotiation skills to set reasonable terms and expectations. Ultimately, the focus should be on building long-term relationships with customers that are mutually beneficial and sustainable over time.

Quiz 6: Measuring and Managing Customer Relationships