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This will need Activity-Based Costing (ABC) system. Let’s analyze the case of customer A and customer B by the ABC system. Both customers have the same amount of sales and the same product cost of $50,000, and under current system they are charged the same price for service sales. However, these two customers consume very different level of services from Allied. So let calculate the true cost that each of these two customers impose on Allied..
Currently, customer A and B both face service charges of 32.2% of product costs, which equals $50,000 * 32.2% = $16,100. Thus, it is apparent that Allied over-charged customer A: $16,100 - $8,481...
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