Cost allocation and customer profitability at TKF, from ABC to CPA

Altink, R.G.J. (2010) Cost allocation and customer profitability at TKF, from ABC to CPA.

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Abstract:This financial research is entitled ‘Cost allocation and customer profitability at TKF, from ABC to CPA’. ABC stands for Activity-Based Costing, whereas CPA stands for Customer Profitability Analysis. As can be seen, this thesis is focused on allocating costs after which customer profitability is analyzed. Performing the research is done for the company B.V. Twentsche Kabelfabriek (TKF). This is a cable-producing company in the Netherlands that was founded in 1930. Its mission is “to be the most innovative and market-oriented company in the cable industry by offering high quality and customized cable solutions for a reliable infrastructure” (Website TKF). The future plans of TKF show that the company wants to focus more on complex projects that are developed in consultation with customers. In general, complex and customer-specific orders demand more efforts from companies than standard orders. By these efforts, supportive activities are meant that are not directly related to making end products, which are mostly cables. These indirect efforts result in indirect costs. By increasing indirect costs, it gets more important to deal with those costs accurately. At the same time, it is logical that the amount of efforts varies across customers. Some customers can require many visits from sales, huge efforts in developing a new product and additional actions from expedition. Consequently, profitability of such customers in reality will be lower than for customers which demand only few additional efforts. In the current situation, costs are allocated by using an average add-on of X percent above product costs. In this way, indirect costs are basically spread among customers, but are not assigned to customers which are responsible for those costs. Therefore, the following research question is formulated: How should overhead costs be allocated at TKF to identify the profitability of each of their customers/customer groups?
Item Type:Essay (Master)
Clients:
B.V. Twentsche Kabelfabriek
B.V. Twentsche Kabelfabriek
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/60088
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