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149Some companies who believe that reliable information on total market size is not available, choose not to compute marketsize and marketshare variances.

1410Customer profitability analysis highlights to managers how individual customers differentially contribute to total profitability. It helps managers to see whether customers who contribute sizably to total profitability are receiving a comparable level of attention from the organization.

1411Companies that separately record (a) the list price and (b) the discount have sufficient information to subsequently examine the level of discounting by each individual customer and by each individual salesperson.

1412 No. A customerprofitability profile highlights differences in current period's profitability across customers. Dropping customers should be the last resort. An unprofitable customer in one period may be highly profitable in subsequent future periods. Moreover, costs assigned to individual customers need not be purely variable with respect to shortrun elimination of sales to those customers. Thus, when customers are dropped, costs assigned to those customers may not disappear in the short run.

1413Five categories in a customer cost hierarchy are identified in the chapter. The examples given relate to the Spring Distributor Company used in the chapter:

Customer outputunitlevel costs – costs of activities to sell each unit (case) to a customer. An example is producthandling costs of each case sold.

Customer batchlevel costs – costs of activities that are related to a group of units (cases) sold to a customer. Examples are costs incurred to process orders or to make deliveries.

Customersustaining costs – costs of activities to support individual customers, regardless of the number of units or batches of product delivered to the customer. Examples are costs of visits to customers or costs of displays at customer sites.

Distributionchannel costs – costs of activities related to a particular distribution channel rather than to each unit of product, each batch of product, or specific customers. An example is the salary of the manager of Spring's retail distribution channel.

Corporatesustaining costs – costs of activities that cannot be traced to individual customers or distribution channels. Examples are top management and general administration costs.

1414A process where the inputs are nonsubstitutable leaves workers no discretion as to the inputs (such as, types of materials or labor) to use. A process where the inputs are substitutable means there is discretion about the exact number and type of inputs to produce output.

1415 The direct materials efficiency variance is a Level 3 variance. Further insight into this variance can be gained by moving to a Level 4 analysis where the effect of mix and yield changes are quantified. The mix variance captures the effect of a change in the relative percentage use of each input relative to that budgeted. The yield variance captures the effect of a change in the total number of inputs required to obtain a given output relative to that budgeted.

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