| dc.description.abstract | In today’s buyers markets, consumers have been demanding higher quality products with lower prices. In the mean time, heated competition results in lower profit margins. Thus,
understanding cost structures and managing costs becomes an important task for many businesses to sustain, while keeping happy customers.
Company M is a small eTailer selling Taiwanese goods on Chinese on-line malls. Like many small businesses, it has never seriously looks into its cost structure and analyze its profit. It estimated profits based on the mark-up of the cost of goods sold.
This study attempts to apply the concept of Activity-based Costing (ABC) to eTailer M, and assess its feasibility. Based on detailed data accumulated for a full month, the major costs associated to the activities of conducting its business operations, such as, customer support,
procurement, packaging and logistics, are singled out. These are allocated to the various product lines that it sold throughout the month. While detailed data associated with each transaction cannot be obtained, a weighted average scheme is devised to conduct the spreading of costs across product lines.
Results reveal that the real profits of each product lines are different from that of the original intuitive estimates. It also shows that the calculation scheme can work, and can be implemented for future operations, with the help of information systems. This will provide better guidelines to decide on future product mix, and to make proper pricing decisions. | en_US |