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Blue Ridge

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Blue Ridge Manufacturing

Blue Ridge Manufacturing is one of a dozen companies that produces and sells towels for the U.S. “sports towel” market. The firm designs, knits, prints, and embroiders towels. The towels are made in three different sizes; regular (18”x30”), hand (12”x20”), and mid-range (15”x24”). These towels are then sold to their 986 customers, who are predominantly from the southeastern states. The volume purchased by each customer does vary a bit. So, the management team has classified them into three groups; large (8 customers), medium (154 customers), and small (824 customers). The small group consists of customers who call in their orders after seeing ads placed in magazines or catalogues. We have been hired by the firm to conduct an analysis of profitability on their activity-based costing system.
Blue Ridge Manufacturing is concerned about how profitable their company truly is. They have hired us to look at their financial activities and advise them of what to do in the future. Blue Ridge has been using activity-based costing for production of their towels for the last few years. They would like us to help them decide not only which products are the most profitable but also which customer group. Currently, Blue Ridge tracks all production costs and customization costs separately from each other. This allows them to follow these costs throughout the production process, making it easier to evaluate the profitability of each product. However, the more difficult task is determining the profitability of each customer group. Each group requires a different amount of support; we need to determine an effective way to track the costs of such support. If we can determine the specific costs associated with a certain customer group, then we can alter our policies to embrace the most profitable group while reducing the capacity of the more

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...BLUE
RIDGE
MANUFACTURING
 ACTIVITY‐BASED
COSTING
AND
CUSTOMER
PROFITABILITY
ANALYSIS
 1.
Allocate
SG&A
Costs
to
SG&A
Activities SG&A
Costs Administration Selling TOTAL Actitives
&
Costs
allocated
 Enter
P.O Commissions Shipping
Activities Invoicing Cost
to
Make
Sales
Calls Checking
Credit Samples,
Catalog
Info Special
Handling
Charges Distribution
Management Marketing
by
Customer
Type Advertising/Promotion Marketing Administrative
Office
Support Licenses,
Fees TOTAL Total
 Shipping Sales Marketing
 Other Assigned Note 












 17,000 












 37,400 










 20,400 










 56,100 









 130,900 From
Table
3 












 15,500 










 117,800 












 9,300 










 12,400 









 155,000 












 32,500 










 155,200 










 29,700 










 68,500 









 285,900 


















‐ 


















‐ 












 85,360 
















‐ 55.00% 












 6,850 











92,210 Percentage
x
Total
Cost
Of
Each
Function 10.00% 












 15,520 
















‐ 10.00% 
















‐ 











15,520 












 21,125 


















‐ 65.00% 
















‐ 
















‐ 










 10,275 











31,400 15.00% 


















‐ 


















‐ 


















‐ 


















‐ 










 13,700 











13,700 20.00% 












 46,560 
















‐ 30.00% 












 6,850 











53,410 10.00% ...

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