Blue Ridge Case - Activity Based Costing (ABC)

1) Profitability Analysis: Blue Ridge         Large         Medium         Small         Total Sales         $308,762.00         $183,744.00         $318,024.00         $810,530.00 Manufacturing Costs         $112,552.70         $72,164.09         $162,864.09         $347,580.88 Sales and Administration Costs         $78,303.47         $50,790.54         $156,805.99         $285,900.00 Total Costs         $190,856.16         $122,954.63         $319,670.08         $633,480.88 Cost as % Sales         61.81%         66.92%         100.52%         78.16% Profit         $117,905.84         $60,789.37         ($1,646.08)         $177,049.12 Profit Margin         38.19%         33.08%         -0.52%         21.84% Note: For detailed calculations please reference attached document. 2) Define action steps for Blue Ridge based on the analysis: The above customer profitability analysis indicates that the small customers have a negative profit margin. As this specific customer base accounts for 40% of Blue Ridges total sales volume we recommend the following action …

…enable managers to determine if price discounting will encourage increased purchases while minimizing profit erosion. In conclusion Blue Ridge defined the right activities; however they might want to consider conducting a product profitability analysis. This will enable them to manage the product mix more efficiently and identify future cost cutting in initiatives. In addition, we fell this would be another valuable exercise in determining weather or not going national would be profitable for Blue Ridge.