stages to calculating the customer and product profitability analysis for rockfield 275437
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3.4.1 The Implementation Stage
The research work shall employ the below steps to implement customer and product profitability analysis using activity based costing approach following the below stages;
FIGURE 11: STAGES TO CALCULATING THE CUSTOMER AND PRODUCT PROFITABILITY ANALYSIS FOR ROCKFIELD PETROLEUM PRODUCTS LIMITED
A. FIGURE 12: Rockfield Petroleum Products Limited Business Process Flow
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The case company’s first step after receiving confirmation of allocation ( allocation is usually on a time table at the depot pasted on the sign board for all to see so this has no process nor activity involved) is to make payment by purchasing bank draft which is taken to the depot to book for the loading of product in question (PMS,AGO or DPK), then the
Company Depot Representive goes with the tanker driver to load the product and in the process has to make different payments related to loading charges at the depot, if he is loading outside the city (this is called bridging) the to and fro trip takes about three days but within the town one day. Then he makes supply to the station which is in need or at times shares the products for the three stations. The tanker driver is paid based only on amount of loading made although there are other expenses involved in running the vehicle too which varies depending on whether the company is using its own tanker or renting one for each trip. B.
FIGURE 13: Rockfield Petroleum Products Limited Retail Outlets, Products And Customer Segements.
| Rockfield Petroleum Products Limited |
|
FIGURE 14: Rockfield’s Hierachy Of Authority, Departments and roles C. FIGURE 15: Rockfield Petroleum Products Limited Cost Gathering And Classification The costs incured by the case company has been classified into three groups;
From observations from books of accounts and questions posed to the management staff the accounting records are kept in total sums of sales and costs, there was no where in the account that the company’s management staff could easily tell which product was most profitable and which customer segement was most profitable. According to them they are making good profit and everything is running perfectly as long as we have products to sell to meet our demands.
The present accounts keeping method is represented by the figure below;
FIGURE 16: ROCKFIELD PETROLEUM PRODUCTS LIMITED ACCOUNTS ACCOUNTING PROCESS NOW
| These costs are recorded as they are incured on daily basis |
|
| Purchases, Depot/station supervisor purchases allowance, Tanker driver bridging cost, Tanker driver local cost, Local depot expenses, Bridging Depot expenses, M/Veh exp when bridging, Delivery charges to customers |
|
| Chairman and Director’s Remuneration, Salaries, Motor vehicle monthly maintenance, Printing and stationaries, Postage and Telephone, Water Rate, Electricity, Promotion, Insurance, Bank charges, Legal fees, Security, equipment replacement, house rent for staff at Oloru, daily fueling of generators, medical bills |
|
TOTAL SALES REVENUE – TOTAL COST INCURED
= GROSS PROFIT |
|
The total sales at each branch are recorded and submitted to the Active director by the three various supervisors daily by five pm for the close of accounts and all other transactions are recorded against the next day. The Active director then enters all transaction into his own summary of accounts book, balances it and then submit to the chairman whose duty is to go through what was spent, what came in, check accuracy in the balances and sign to seal the day’s transaction. The chairman is assisted by Accounting and Administrative staff to enable smooth running of operations in the company.
D.
Having identified the business process, operations, business, products and customers of Rockfield Petroleum Limited, the research shall eploy a multidimensional approach employing the use of activiy based costing method to calculate profits by product type and customers by segment and give a report on the results as appropriate.
FIGURE 17 : AN ACTIVITY BASED COSTING MODEL FOR ROCKFIELD PETROLEUM LIMITED
Activity based costing aims to accurately calculate the total cost of the object of an organization. In a filling station business in Nigeria the final output is selling petroleum product to either retail customers or wholesale customers, however to get to this point of sales the company has to procure the products from the depot, transport it to their respective filling stations, store and the sell through dispensing pump on the pump island. For example the Purchasing Department ABC structure; Thus having studied Rockfield Petroleum limited extensively for the purpose of this research in the below table is a summary of its activity cost pools and drivers that shall be used to properly allocate the indirect costs to the activity center it took place and the activites responsible for its cause.
Table: Rockfeild Petroleum Products Limited Acitivity cost pools and Cost drivers
| ACTIVITY COST POOLS |
ACTIVITY COST DRIVERS |
ACTIVITY CATEGORIES |
| Purchasing Department |
Number of product loaded |
Batch Level Activity |
| Sales Department |
Cost per Liter |
Unit Level Activity |
| Facility Management Department |
Cost per Liter |
Unit Level Activity |
| Administrative Department |
Cost per liter |
Unit Level Activity |
| Delivery |
Number of Order |
Batch Level Activity |
CALCULATING C….docx