Accounting Q&A · Cost and Management Accounting · Topic 29
Try each question before revealing the answer.
25 short-answer questions. Try each question before revealing its answer.
Worked example
A customer generates net revenue of 30,000 and product cost of 18,000. Account-specific delivery and support cost 5,000. Customer profit before shared costs is 7,000.
Core concepts
1. What is customer profitability analysis?
Measure revenue and attributable costs by customer or customer group.
2. What is net customer revenue?
Billed revenue adjusted for discounts, returns and other applicable reductions.
3. What is cost to serve?
Costs associated with handling, delivering and supporting a customer’s orders.
4. Why can revenue rankings differ from profit rankings?
Customers with similar sales may require different discounts, deliveries or support.
5. What is gross customer margin?
Net customer revenue less related product or service cost.
6. What is customer operating contribution in a simple model?
Gross margin less customer-specific operating costs defined in the analysis.
7. What is an order-level cost?
A cost driven by an order, such as order entry or picking setup.
8. What is a customer-level cost?
A cost incurred to support an account, such as dedicated account management.
9. How can activity-based costing help?
Assign service costs using drivers such as deliveries, orders or support hours.
10. What is a useful driver for shipment handling?
Number of shipments, handling hours or another measure reflecting work performed.
Worked applications
11. A customer buys 20,000 and receives a 1,000 discount. What is net revenue?
19,000 before other adjustments.
12. Product cost is 12,000. What is gross margin?
7,000.
13. Delivery costs 2,000 and support costs 1,500. What is customer contribution?
3,500 before other or shared costs.
14. What is customer contribution as a percentage of 19,000 revenue?
About 18.4%.
15. A delivery pool costs 36,000 for 600 deliveries. What is the rate?
60 per delivery.
16. A customer uses 15 deliveries. What delivery cost is assigned?
900 using that rate.
17. Why distinguish assigned cost from avoidable cost?
Dropping the customer may leave shared staff, vehicles or facilities in place.
18. What is customer lifetime value?
An estimate of future net cash or contribution from a relationship, often discounted and adjusted for retention assumptions.
19. How does acquisition cost affect the analysis?
It reduces relationship profitability and may occur before recurring revenue is earned.
Review and exam practice
20. How can late payment affect profitability?
It increases financing needs and can create collection costs or credit losses.
21. What can be done before dropping an unprofitable customer?
Review prices, order sizes, delivery frequency and service terms, and estimate avoidable costs.
22. Why review seasonality?
A short measurement period may miss later orders or repeat service costs.
23. How should discounts shared across products be handled?
Allocate or trace them using a consistent basis that reflects the offer terms.
24. Why use a customer profitability distribution?
It reveals concentration, cross-subsidies and accounts that need investigation.
25. What should a final recommendation include?
State the relationship value, relevant costs, service options and risks of changing terms.