Reference no: EM132480577

Part 1 Requirements

After reading the information regarding Jamestown's industry, strategic focus, and initial and alternate customer profitability systems, respond to the following questions.

Question A. Rank Alanson, Boyne, and Conway from most profitable to least profitable according to the initial system's estimate of the contribution of each customer to Jamestown's bottom-line profitability. What are Jamestown's options regarding the treatment of these three customers? Based on this initial customer profitability analysis, what action do you recommend Jamestown take with each of these three customers?

Question B. What, if any, issues/challenges do you see with the customer profitability measurements from the initial customer profitability system, provided in Exhibit 2? What assumption(s) is the customer profitability system making implicitly, with respect to the way in which each customer consumes Jamestown's resources?

Question C. Are the accounting customer profitability measures provided by the initial customer profitability system positive (i.e., provide supportive cost information that leads Jamestown managers to make better decisions about corporate profitability), negative (i.e., provide cost information that leads Jamestown managers to make worse decisions about corporate profitability) or neutral (i.e., provide cost information that does not affect Jamestown managers' decisions about corporate profitability)?

Question D. Now consider the alternate customer profitability system that Jamestown is contemplating. How does the alternate system differ (e.g., underlying assumptions, categorization and treatment of various costs) from the initial system?

Question E. Use the data provided from the alternate customer profitability system to calculate customer service charges for W&S activities for Alanson, Boyne, and Conway. Next, estimate the contribution to Jamestown's bottom-line profitability made by each of these three customers according to this new alternate customer profitability system.

Question F. Rank Alanson, Boyne, and Conway from most profitable to least profitable according to the alternate system. Explain any significant differences in the estimated contribution to profitability of these three customers when using the initial customer profitability system versus the new alternate system you created.

Question G. Explain why the alternate system does or does not provide better information about customer profitability than the initial system. Based on the results of the alternate customer profitability system, how might Jamestown alter its treatment of Alanson, Boyne, and Conway to improve overall profitability?

Question H. How might Jamestown need to alter its incentive system for management to achieve larger profits? What other issues might Jamestown management want to consider in implementing and operating a customer profitability system?