Questions:

Q1: Do you agree with the way functional costs are allocated? What changes
would you recommend?

 Based on the data and the guidelines formulated by Stella Jordan and Bob Basler the
functional cost focus on both orders getting and order filling costs.
 Some of the Functional cost items (FCIs) can be better allocated:
 Direct selling lacks data for other salesperson's customers
 Travel cost should take in the average distance travelled for orders from customers.
 Packaging should also take into account the dimensions and weight of the products.
 Similarly, for warehousing and transportation
 I would suggest Activity Based Costing for FCIs instead of taking average costs.

Q2: Prepare a profitability analysis for each sales representative

Charlie
Paul Sand Diane Gallo Kathy Parks Total
Lyons
$
$ $ $ $
Sale 2,638,34
584,170 681,450 667,385 705,335
0
$
$ $ $ $
Cost 2,014,48
444,802 521,390 510,662 537,631
5
Gross $ $ $ $ $
Margin 139,368 160,060 156,723 167,704 623,855

Salaries $ $ $ $ $
(Direct) 24,500 27,500 26,000 28,500 106,500
Salaries $ $ $ $ $
(Indirect) 10,927 12,265 11,596 12,711 47,500
Sal Order $ $ $ $ $
 processing 2,571 3,643 2,571 3,214 12,000
Sal $ $ $ $ $
Packaging 2,447 2,861 2,785 2,907 11,000
$ $ $ $ $
Commissions
8,362 9,604 9,403 10,062 37,431
$ $ $ $ $
Travel
10,732 13,257 13,888 21,463 59,340
$ $ $ $ $
Advertising
29,209 34,073 33,369 35,267 131,917
$ $ $ $ $
Packaging
9,708 11,350 11,050 11,534 43,642
Warehousing
and $ $ $ $ $
transportatio 16,989 19,863 19,338 20,185 76,374
n
Order $ $ $ $ $
processing 165 234 165 206 770
Total $ $ $ $ $
Expense 126,960 146,182 130,166 146,050 526,474
$
Rent
83,000
$ $ $ $ $
Net Profit
12,408 13,878 26,557 21,654 14,381

Gross Profit $ $ $ $ $
Margin 0.2386 0.2349 0.2348 0.2378 0.2365
Net Profit $ $ $ $ $
Margin 0.0212 0.0204 0.0398 0.0307 0.0055
 profitability analysis for each sales representative
Paul Sand Diane Gallo Kathy Parks Charlie Lyons

$705,335

$667,385
$681,450

$537,631
$584,170
$510,662
$521,390

$444,802

$167,704
$146,050
$156,723
$160,060 $130,166
$146,182
$139,368
$35,267 $126,960
$28,500 $21,463 $21,654
$12,711 $3,214 $2,907 $10,062 $33,369 $11,534 $20,185
$26,000 $19,338 $206 $26,557
$11,596 $9,403 $13,888$34,073 $11,050
$27,500 $2,571 $2,785 $165
$12,265 $9,604 $13,257 $11,350 $19,863 $13,878 Charlie Lyons
$24,500 $3,643 $2,861 $29,209 $234
$10,927 $8,362 $10,732 $9,708 $16,989 $12,408 Kathy Parks
$2,571 $2,447 $165
Diane Gallo
Paul Sand
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Though Charlie has more sales volumes but hit net profit contribution is less than that of Kathy.
Charlie expenses are high which lower his net profit contributions.
Therefore, on the basis of profitability analysis Charlie can denied a salary hike.

Q3: Prepare a profitability analysis for Charlie Lyons's customers.

   American TV Appliance Mart Audio Emporium
Sales $ 340,855 $ 245,305 $ 119,175
Cost $ 260,594 $ 188,659 $ 88,378
Gross Margin $ 80,261 $ 56,646 $ 30,797
       
Direct selling (minutes) 3575 2475 2250
Commission $ 4,816 $ 3,399 $ 1,848
Travel $ 8,207 $ 6,944 $ 6,313
Advertising $ 17,043 $ 12,265 $ 5,959
Packaging $ 5,578 $ 3,928 $ 2,028
Warehouse and
transportation $ 9,762 $ 6,874 $ 3,549
Order and processing $ 110 $ 41 $ 55
Total Expense $ 45,515 $ 33,451 $ 19,751
       
Net Profit $ 34,746 $ 23,195 $ 11,046
       
Gross Profit Margin 0.2355 0.2309 0.2584
Net Profit Margin 0.1019 0.0946 0.0927

profitability analysis for Charlie Lyons's customers

Audio Emporium Appliance Mart American TV
$340,855

$260,594

$245,305

$188,659

$80,261
$119,175

$88,378 $45,515
$56,646 $34,746
$17,043
$3,575 $4,816 $8,207 $5,578 $9,762 $33,451
$110 $23,195
$30,797 $6,944 $12,265 $6,874
$2,475 $3,399 $3,928 $41 $19,751 Am erican TV
$6,313 $5,959 $11,046
$2,250 $1,848 $2,028 $3,549 $55 Appliance Mart
Audio Emporium
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America TV is the biggest customer in terms of volume and sales.