How customer profitability analysis can be used
Course:- Managerial Accounting
Reference No.:- EM131195532

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Each group is required to read the case and address the issues raised at the end of the case. You are expected to conduct research relating to: customer profitability; competitive advantage/competitive strategy; activity based costing, activity based management and relate this back to the case study requirements when preparing your assignment. The assignment should be in REPORT format and NOT a collection of separate sections each written by individual students.

The report should include: cover page, executive summary, table of contents, introduction, discussion (with appropriate sub- headings), conclusion, bibliography and appendices.

Please ensure you include summary calculations in the body of the report and include detailed workings in appendices. Also, it is important that all articles, books and weblinks used for the assignment are properly referenced throughout the assignment. Hand written assignments are not acceptable.


The senior managers at Illusional Optics have approached your project team and have asked for advice on the current situation and the future direction of the company. You are expected conduct research and analysis to prepare a report for the next executive management meeting which addresses the requirements below:

1. Your project team is required to present to Illusional Optics' senior management a recommendation of the best strategy you believe that the company should adopt in order to be competitive. In order to achieve this, your team should conduct research into the fundamental ways in which companies can achieve a sustainable competitive advantage. Specifically your team is required to:

(i) Discuss in detail two of these strategies, and for each one, identify and discuss in detail two Australian or US, publicly listed companies (include the company code of each) that have succeeded in using the particular strategy, the reason why the strategy was chosen and implemented by the company, and how this has been effective for each company.

(ii) Using your research from Requirement 1(i), present the senior management team with a recommendation of the best strategy you believe Illusional Optics could adopt in order to be competitive and why this is the best one. Your discussion should include and justify what you believe to be the critical success factors in achieving this strategy. Explain also why the other strategy, as identified by your research above, may not be as effective for the company as the one recommended.

2. Illusional Optics' management team have agreed that the company needs to become more customer focused and have asked your project team to research this further with respect to customer profitability analysis. Discuss in detail how customer profitability analysis can be used by companies in increasing customer focus. You should also identify and discuss in detail two Australian or US, publicly listed companies (include the company code of each) which have implemented customer profitability analysis highlighting how these companies have used this approach to become more customer focused and discuss what the overall outcome has been for each company.

3. (i) Design a customer profitability system based on Activity Based Costing (ABC) for Illusional Optics. You will need to describe in detail the elements of this costing system justifying the activity cost pools and activity cost drivers included. Include in your answer the activity cost driver rates.

(ii) Using the new ABC customer profitability system your group has designed calculate and show the profitability of Illusional Optics' five customer groups.

4. Based on your group's ABC customer profitability information, explain in detail the differences in the profitability of Illusional Optics' five customer groups with an emphasis on analysing the customer related activity costs.

5. Based on your project team's research and also on your customer profitability analysis for Illusional Optics, identify and discuss in detail three strategic issues that may arise for the company.

Attachment:- Illusional Optics Case.docx

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