AM S1 Reguler – [VI] Revenues, Sales Variances, and Customer Profitability Analysis

Dosen : Sonya Oktaviana/Sri Nurhayat

Problem 1 – Customer Profitability Analysis

Direction TV makes a component for branded LED TVs called A208b. This component is
manufactured upon order from the manufacturer of the TV, so Direction TV keeps no inventory. The
list price is Rp. 750.000,-, but manufacturer of the TV often receives discount of 5% if it order large
enough. The component is packed in a box that contains 100 pieces of A208b. If the order is not in a
multiplier of 100, it is put in a single box (e.g 245 pieces is packed in 3 boxes). To retain its
relationship with the customer, it uses a policy that accepts fee exchange of defective units within 10
days of delivery.

According to the data, a unit of A208b cots Rp 250.000,- and the details of customer level costs are a
follows:

Order Taking Rp 1,250,000 oer order

Product Handling Rp 750,000 per box
Warehousing Rp 450,000 per day
Rush Order Processing Rp 7,000,000 per rush order
Exchange and Repair Rp 350,000 per unit
As being detailed below, for biggest customers of Direction TV during 2014 are as follows:

LG Samsung Sony Toshiba

No. of units purchased 15,000 19,500 16,500 8,500
Discount given 10% 10% 10% 0%
no. of orders 40 23 27 65
No. of boxes 150 195 165 85
Days in Warehouse 30 22 5 55
No. of rush orders 10 21 11 6
No. of units Exchanged 30 - 2 15

1. Calculate the customer level operating income for these four customers. Prepare a
customer profitability analysis by ranking the customer from most to least profitability.
2. Does Direction TV have unprofitable customers?

Problem 2- Sales Variances

The Denver Magic play in the American Ice Hockey League. The Ice play in the Downtown
Arena (owned and managed by the City of Denver), which has a capacity of 15,000 seats (5,000
lower-tier seats and 10,000 upper-tier seats). The Downtown Arena charges the Magic a per-ticket
charge for use of its facility. All tickets are sold by the Reservation Network, which charges the Magic
a reservation fee per ticket. The magic’s budgeted contribution margin for each type of ticket in 2014
is computed as follows:

Lowe-Tier tickets Upper-tier Tickets

Selling Price 35 14
Downtown Arena Fee 10 6
Reservation Network Fee 5 3
Contribution margin per ticket 20 5

The budgeted and actual average attendance figures per game in the 2014 season are as follows:
 AM S1 Reguler – [VI] Revenues, Sales Variances, and Customer Profitability Analysis
Dosen : Sonya Oktaviana/Sri Nurhayat
Budgeted Seats Sold Actual Seats Sold

Lower Tier 4,000 3,300

Upper Tier 6,000 7,700
Total 10,000 11,000

There was no difference between the budgeted and actual contribution margin for lower-tier or
upper-tier seats.

The manager of the Magic was delighted that actual attendance was 10% above budgeted
attendance per game, especially given the depressed state of the local economy in the past six
months.

1. Compute the sales-volume variance for each type of ticket and in total for the Denver Magic
in 2014.
2. Compute the sales-quantity and sales mix variances for each type of ticket and in total in
2014

Problem 3 – Bundled Products and Revenue Allocation Methods

Fabulous Hotels (FH) operates a five-star hotel with a championship golf course. FH has a
decentralized management structure, with three divisions:
- Lodging (rooms, conference facilities)
- Food (restaurants and in-room service)
- Recreation (golf course, tennis courts, swimming pool, etc)
Starting to next month, FH will offer a two-day, two-person “getaway package” for $1,000
This deal includes the following:

Two nights stay for two in an ocean-view room $ 800

Two rounds of golf (can be used by either guest) $ 375
Candlelight dinner for two at FH's finest restaurant $ 200
Total package value $ 1,375

Jenny Lee, president of the recreation division, recently asked the CEO of ER how her division would
share in the $1,000 revenue from the gateway package. The golf course was operating at 100%
capacity. Currently, anyone booking the package was guaranteed access to the golf course. Lee noted
that every “gateway” booking would displace $275 of other golf bookings not related to the package.
She emphasized that the high demand reflected the devotion of her team to keeping the golf course
rated one of the best “Best 10 Courses in the World” by Golf Monthly. As an aside, she also noted
that the lodging and food divisions had to run away customers during only “peak season events such
as the New Year’s period”.

1. Using selling price, allocate the $1,000 gateway-package revenue to the three divisions using:
a. The stand-alone revenue-allocation method
b. The incremental revenue-allocation method (with recreation first, then lodging, and then
food)
2. Because the recreation division is able to book the golf course a 100% capacity, the company
CEO has decided to revise the getaway package to only include the lodging and food
offerings shown previously. The new package will sell for $900. Allocate the revenue to the
lodging and food divisions using the following:
a. The Shapley value method
 AM S1 Reguler – [VI] Revenues, Sales Variances, and Customer Profitability Analysis
Dosen : Sonya Oktaviana/Sri Nurhayat
b. The weighted Shapley value method, assuming that lodging in three times as likely to sell
as the food.