1. Costing at the Boundaries of the Firm

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

3. 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

4. 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

5. 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

6. 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