CONTROLE INTERNE AVANCE

1. CONTROLE INTERNE AVANCE Analyse de positionnement stratégique et de rentabilité

2. Cost Allocation • We examined previously allocation of indirect costs to individual products. As we saw then, finding answers to cost-allocation questions is often difficult: the answers are seldom clearly right or wrong! • The emphasis in this lecture is on macro issues in cost allocation: allocation of costs to divisions, plants, distribution channels, and customers.

3. Cost Allocation • Assigning indirect costs to such cost objects as products, customers, and distribution channels, • These costs are not traced, • Indirect costs often comprise a large percentage of Total Overall Costs.

4. Purposes of Cost Allocation • To provide information for economic decisions, • To motivate managers and other employees, • To justify costs or compute reimbursement amounts, • To measure income and assets for reporting to tax authorities.

5. Six-Function Value Chain • Traditional Life Cycle approach may not yield the costs necessary to meet the four-purpose criteria for cost allocation. • Costs necessary for decision making may pull costs from some or all of these six functions.

6. Six-Function Value Chain • E.g., for some decisions related to the economic-decision purpose (long-run product pricing), the costs of all six functions are relevant, • Conversely, for reporting to external parties, inventoriable costs include only manufacturing costs…

7. Criteria for Cost-Allocation Decisions • Cause and Effect – variables are identified that cause resources to be consumed, • Benefits Received – the beneficiaries of the outputs of the cost object are charged with costs in proportion to the benefits received (e.g., the costs of an advertising campaign may be allocated on the basis of divisions revenues),

8. Criteria for Cost-Allocation Decisions • Fairness (Equity) – the basis for establishing a price satisfactory to the government and its suppliers: • Cost allocation here is viewed as a “reasonable” or “fair” means of establishing selling price, • Ability to Bear – costs are allocated in proportion to the cost object’s ability to bear them: • Generally, larger or more profitable objects receive proportionally more of the allocated costs (e.g., the allocation of corporate executive salaries on the basis of division operating income. The presumption is that the more-profitable divisions have a greater ability to absorb corporate headquarters’ costs…)

9. Two Approaches to Compute Profits Conventional income statement Contribution margin income statement

10. Conventional Income Statement Sales Cost of Goods Sold Gross Margin – = Net Income Gross Margin Operating Expenses – =

11. Contribution Margin Income Statement Sales Variable Expenses Contribution Margin – = Net Income Contribution Margin Fixed Expenses – =

12. Segment analysis 1

13. Segment analysis 2 • Should the company drop the Mountain bike product? • It depends… The operating statements categorize the costs in terms of product costs and period costs. • Is that the right way to view these costs for this particular decision? Or, what are the differential (or avoidable) costs of producing Mountain bikes?

14. Segment analysis 3 • If the company chooses to exit from the market for Mountain bike products, can all of the manufacturing variable costs be avoided in the future? • How about fixed manufacturing overhead?

15. Segment analysis 4 • To better support a decision process involving the possibility of dropping Mountain bike from the company mix of products, the company needs to reclassify the product and period costs as either direct or indirect to the product line.

16. Segment analysis 5

17. Segment analysis 6 • The costs that can be removed from the system by discontinuing the Mountain bike business segment are direct costs to the segment, • All other costs are indirect costs that have been assigned by the accounting system to the Mountain bike segment, • If the company chooses to exit the market for Mountain bike products, these costs will remain in the company and will be reallocated to the remaining business segments, • The true performance of Mountain bike is not a loss, but a $ 6,540 contribution to overall company profits.

18. Cases • Rembrandt Hotel & Casino • Lenzig Corporation

19. Customer Loyalty • It takes a lot less money to increase retention of current customers than to find new ones, • Companies are increasingly making distinctions among their customers, providing more support for and allocating more resources to their regular and most profitable customers (e.g., Airlines company provide special services for their most frequent fliers), • Determine most profitable customers implies to identify and allocate costs to customers instead of products…

20. Customer Revenues and Customer Costs • Customer-Profitability Analysis is the reporting and analysis of revenues earned from customers and costs incurred to earn those revenues, • An analysis of customer differences in revenues and costs can provide insight into why differences exist in the operating income earned from different customers.

21. Customer Revenues • Price discounting is the reduction of selling prices to encourage increases in customer purchases: • Lower sales price is a tradeoff for larger sales volumes, • Discounts should be tracked by customer and salesperson.

22. Customer Cost Analysis • Customer Cost Hierarchy categorizes costs related to customers into different cost pools on the basis of different: • types of drivers, • cost-allocation bases, • degrees of difficulty in determining cause-and-effect or benefits-received relationships.

23. Customer Cost Hierarchy Example • Customer output unit-level costs: costs of activities to sell each unit to a customer (e.g., product-handling costs). • Customer batch-level costs: costs of activities that are related to a group of units sold to a customer (e.g., costs incurred to process orders or to make deliveries). • Customer-sustaining costs: costs of activities to support individual customers, regardless the number of units or batches of product delivered to the customer (e.g., costs of visits to customers). • Distribution-channel costs: costs of activities related to a distribution channel rather than to each unit of product, each batch of product, or specific customers (e.g., the salary of the manager of a retail distribution channel). • Corporate-sustaining costs: costs of activities that cannot be traced to individual customers of distribution channels (e.g., top- management and general-administration costs).

24. Other Factors in Evaluating Customer Profitability • Likelihood of customer retention • Potential for sales growth • Long-run customer profitability • Increases in overall demand from having well-known customers • Ability to learn from customers

25. Case • Ramish Electronics