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FIN 601- Week 8 Discussion: Typical Customers

Aug 28, 2023

Provide some pieces of advice on how you would approach a meeting with a typical customer A and a typical customer B. How would the ABC information be used during that meeting?

Week 8 Discussion: Typical Customers

From the earlier assignments, we have come across activity-based costing or ABC which is a process of costing aiming at the allocation of costs in proportion to products and services. Planning by the management becomes simple and cost control becomes achievable when the ABC method of assigning costs is used by a company.

In the given scenario the company named Allied has a customer A who is generating less service revenue for the company by utilizing less services offered by the company. On the other hand, there is a customer B who consumes much more services than A and definitely can fetch more revenue for the company Allied. So it is clear that Allied should charge more from customer B for more profit generation and customer B will readily agree to pay because customer B needs the services of the company to function well. I

the case of customer A the requirement of resources offered by Allied is limited and hence finding any other company would be easy for A. Allied should have an honest conversation with A and deal straightforwardly to avoid any misconceptions. This will help in establishing the belief of the customers in Allied and encourage confident decision-making on the management’s end. Say the management personally meets with Customer B and presents a detailed breakdown of the distribution costs arising from the Activities and Activity Drivers used, now if the customer sees that the costs required for maintaining their requests are not as profitable for the company, they may understand and be willing to accept a change in service fees or assist in brainstorming of a plan to charge for a minimum amount of usage for each service, much like a bulk charge for particular services. This helps in creating a trustful relationship between the customer and the company. It also enables the company to makefewer profit-making decisions by the company in the long term along with building trust among its customers.

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