Costing at the Boundaries of the Firm

Agenda Extend the notion of costing systems to the “boundaries” of the firm Customers Mechanics of computing customer costs Takeaway

Customer Cost Information about the costs imposed on the firm by a customer (or a set of customers) is useful for many decisions Pricing Promotion Targeting Revenue by customer group is relatively straightforward Customer costs allow us to compute profitability

Customer Cost How do customers cause costs? Ordering behavior Demands for support Payment patterns These all require activities Processing orders Responding to customer requests Collection and billing calls Shared resources exist to conduct these activities

Customer Costs Direct Costs Shared Overhead Resources Direct (e.g., the cost of the products) Process Respond … Collect Orders Calls Late payments … Customer 1 Customer 1017

Takeaway Costing at the boundaries of the firm follows the same principles as that of product costing Cost objects are different Customers instead of products