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# Solved Case Analysis: Owens & Minor Inc. (A) By V.G Narayanan (Download Now)

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## Description

Solution Pages: 6

Word (.docx) & Excel (.xlsx)

Questions Covered in the Solution

Evaluate the impact cost-plus pricing has on distributors, customers, and suppliers?

What effect will ABP have on customer behavior?

Work through the following numerical exercise by filling in the template provided:

1. You are an account manager at Owens & Minor. You have two customers on a stockless program. Below are each customer’s activity levels, activity rates, and customer level costs. See Alpha Hospital — Customer Profitability Statement (Exhibit 4 in Owens & Minor, Inc. Case A). Draft a customer profitability statement for Beta Hospital by filling in the template provided.
2.  It is one year later. Both your customers switched to Activity-Based Pricing (ABP) nine months ago. You charge each customer what it costs you to provide service, making margin only on distributor discounts. Draft new customer profitability statements for both Alpha Hospital and Beta Hospital using the new activity drivers shown below. What is the cost-plus equivalent of the activity fee each customer is charged? Explain why each customer responded differently to activity-based pricing.

### Sample of Solution

Evaluate the impact cost-plus pricing has on distributors, customers, and suppliers?

Impact on Distributors:

Cost-Plus pricing has an adverse impact on the distributors in conjunction with the customers based on their preferences of the services. Since cost-plus pricing is focused on just the value of the product rather than the value of the service or the holding costs of that product. Hence, this disjunction can lead to greater discrepancies in the behavior of the consumers and ultimately the valuing system of the distributors.

……….

You are an account manager at Owens & Minor. You have two customers for a stockless program. Below are each customer’s activity levels, activity rates, and customer level costs. See Alpha Hospital — Customer Profitability Statement (Exhibit 4 in Owens & Minor, Inc. Case A). Draft a customer profitability statement for Beta Hospital by filling in the template provided.

 Monthly Customer Profitability Statement (Beta Hospital) Revenues Products Sales \$   150,000 Cost-Plus Margin \$     22,500 Net Sales \$     172,500 Cost of Goods Sold \$     145,965 Cost of Goods Sold \$   150,000 Vendors Discount \$     (4,035) Gross Margin \$        26,535

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