1. © 2012 Pearson Prentice Hall. All rights reserved. Customer Profitability Analysis and Sales-Variance Analysis

2. © 2012 Pearson Prentice Hall. All rights reserved. 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.

3. © 2012 Pearson Prentice Hall. All rights reserved. Customer Revenues Price discounting is the reduction of selling prices to encourage increases in customer purchases. Lower sales price is a trade-off for larger sales volumes. Discounts should be tracked by customer and salesperson.

4. © 2012 Pearson Prentice Hall. All rights reserved. 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

5. © 2012 Pearson Prentice Hall. All rights reserved. Customer Cost Hierarchy Example 1. Customer output unit-level costs 2. Customer batch-level costs 3. Customer-sustaining costs 4. Distribution-channel costs 5. Corporate-sustaining costs

6. © 2012 Pearson Prentice Hall. All rights reserved. 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

7. © 2012 Pearson Prentice Hall. All rights reserved. Customer Profitability Analysis Illustrated

8. © 2012 Pearson Prentice Hall. All rights reserved. Customer Profitability Analysis Illustrated

9. © 2012 Pearson Prentice Hall. All rights reserved. Customer Profitability Analysis Illustrated

10. © 2012 Pearson Prentice Hall. All rights reserved. Customer Profitability Analysis Illustrated

11. © 2012 Pearson Prentice Hall. All rights reserved. Sales Variances Level 1: Static-budget variance—the difference between an actual result and the static-budgeted amount Level 2: Flexible-budget variance—the difference between an actual result and the flexible-budgeted amount Level 2: Sales-volume variance Level 3: Sales-quantity variance Level 3: Sales-mix variance

12. (c) 2012 Pearson Prentice Hall. All rights reserved. Sales-Mix Variance Measures shifts between selling more or less of higher or lower profitable products

13. © 2012 Pearson Prentice Hall. All rights reserved. Sales-Quantity Variance

14. © 2012 Pearson Prentice Hall. All rights reserved. Flexible-Budget and Sales-Volume Variances Illustrated

15. © 2012 Pearson Prentice Hall. All rights reserved. Sales-Mix and Sales–Quantity Variances Illustrated

16. © 2012 Pearson Prentice Hall. All rights reserved. Sales Variances Summarized

17. © 2012 Pearson Prentice Hall. All rights reserved.