Elkay Plumbing Products Division

The division has just finished a project to install a time-driven activity-based cost system that traces costs directly to the processes used to produce, sell and deliver a wide variety of stainless steel sinks. The division sells to customers in multiple channels (retail, distributors, contractors, and wholesalers). The VP of sales wanted a much more accurate cost system so that he could conduct difficult but fact-based negotiations with customers. The new system revealed that the most profitable 1% of the division's customers generates 100% of profits, and that two of the division's largest customers lose 50% of profits. The case describes the design and implementation of the new cost and profit measurement system and identifies the range of decisions made by managers after seeing the enormous dispersion of profits among products and customers. Students must make recommendations about how the VP of sales should approach the division's most profitable and most unprofitable customers