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Allied Office Products

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  • Pages: 2
  • Word count: 481
  • Category: Economics

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Company A costs Allied less money to service, they are also a much smaller source of potential growth for the company. Company B on the other hand utilizes far more services and has the potential to earn Allied much greater revenue. With the information we have from the new ABC costing scheme we now know that Allied should be charging far more for the services rendered to company B, and less for the services used by company A. Current information shows that company B utilizes $13510.56 more in service costs than we were previously charging them, while company A is utilizing $ 5668.46 less.

Should TFC implement the SBP pricing system?

We believe the gradual implementation of the SBP system is beneficial. It would clarify service costs for management, and clearly show the financial responsibilities of the companies utilizing the services. SBP pricing could potentially earn the company far greater revenue by establishing charges for services that are currently not be represented on a cost basis. Charging costumers for the services they utilize is an equitable distribution of charges. Companies not currently utilizing services will pay less, while companies who are currently utilizing the most services will incur the most costs.

Another benefit of this system is the clear definition of services being utilized. Since ROI has been steadily decreasing in recent years, this gives the company the opportunity to establish a costing system that could provide more stable revenue growth. However, establishing this new pricing system creates new issues of concern for future operation. The new pricing could cost Allied a percentage of its customer base and subsequent revenue. A steady slow implementation of this pricing system will give Allied the chance to look at current numbers and asses accurately whether or not the new system is profitable. If under the SBP system companies choose to discontinue a specific service, variable costs for the service will no longer be incurred.

What managerial advice do you have for Allied about the Total Forms Control (TFC) business? How does Exhibit 6 relate to this question?

The most important element of an efficient cost effective strategy is to eliminate non value added activities. The current TFC chain has several activities that are not adding value to the customer. We have identified 4 non valued added activities within the value chain: storage and inventory financing, requisitioning, order entry billing, and freight. We would ideally like to see these activities streamlined or eliminated from the TFC chain so that the extra resources can be more appropriately allocated to the services adding value to the customer. These saved resources could also be eliminated from the cost structure of the company, thus reducing costs for the customer. The management of Allied should also develop an appropriate pricing structure for the services being used that would maximize profits for the company.

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