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Each of the Big, Small and Medium cost is categorized by the manager into Red, Yellow, Green and Violet costs. Breakdown of the additional costs under these headings is shown in the table below: Red, Yellow, Green and Violet costs are allocated to different retail formats. These costs are apportioned in the ratio of number of units consumed by each retail format. The number of units consumed by each retail format is given in the table below:
The BIG and Colourful Company
You are running "BIG and Colourful (BnC)" company that sells books to customers through three retail formats:
a. You can buy books from bookstores,
b. You can buy books from supermarket,
c. You can order books over the Internet (Online).
Your manager has an interesting way of classifying expenses: some of the expenses are classified in terms of size: Big, Small and Medium; and others are classified in terms of the colors, Red, Yellow, Green and Violet. The company has a history of categorizing overall costs into initial costs and additional costs. Additional costs are equal to the sum of Big, Small and Medium expenses. There are two types of margins, contribution (sales minus initial costs) and profit (contribution minus additional costs). Given below is the data about sales and costs of BnC:
Sales from online = 50% of total sales = 50% of 60000 = 30000
The ratio of supermarket sales and book store sales is 1:2
Supermarket sales = (30000*1)/3 = 10000
Bookstore sales = (30000*2)/3 = 20000
Initial costs for online = 50% of total initial costs (Initial cost is allocated in ratio of sales)
= 50% of 39000 = 19500
Initial costs for supermarket = (19500*1)/3 = 6500 (Initial cost is allocated in ratio of sales)
Initial costs for bookstore = (19500*2)/3 = 13000
For online:
Additional costs = Red + Yellow + Green + Violet for online) ....(1)
Total red costs = 5500
Red costs for online = 5500*(200/275) = 4000
Similarly,
Yellow costs for online = 3100*(52/100) = 1612
Green costs for online = 4800*(50/80) = 3000
Violets costs for online = 2400*(50/80) = 1500
Addition costs for online = 4000+1612+3000+1500 = 10112 From (1)
Profit = Sales - Initial costs - Additional costs = 30000-19500- 10112 = 388
For Supermarket:
Additional costs = Red + Yellow + Green + Violet
= 5500*(65/275) + 3100*(20/100) +4800*(21/80)+2400*(21/80) = 3810
Profit = 10000-6500- 3810
= -310
For Bookstore:
Additional costs = Red + Yellow + Green + Violet
= 5500*(10/275) + 3100*(30/100) +4800*(9/80)+2400*(9/80)
Profit = 20000-13000-1940 = 5060
Bookstore gives highest profit for BnC.
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