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The Doha Camping Company Case Doha Camping Company, is a manufacturer of tents and camping accessories. The companys Doha plant manufactures three product lines and each of which produces a brand of tent. These brands are the Sahara Standard (STD), the Deluxe (DEL), and the Ultimate (ULT). Until recently, Doha Camping Companys Doha plant used a job-order product-costing system. The cost of each product was the sum of its actual direct-material cost, actual direct-labour cost, and applied manufacturing overhead as follows: Exhibit (1)

products	STD Tent	DEL Tent	ULT Tent
cost items
Planned annual production (Units	10,000	8,000	2,000
Raw material cost per unit	$100	$120	$180
Labour wage rate per hour	$20	$20	$20
Labour hours required per unit	9 hours	11 hours	13 hours

Overhead was applied using a predetermined overhead rate based on direct-labour hours. By using traditional system, all of the Doha plants budgeted manufacturing overhead costs are lumped together in a single cost pool. This total budgeted overhead amount is $4,896,000 assigned to STD, DEL & ULT based on labour hours. Trouble in Doha Camping Company Operation and Profitability of Doha Camping Company operation has been facing many challenges in recent years. The companys pricing policy sets a target price for each tent equal to 120% of the full product cost. However, actual prices used for these products are not consistent with pricing policy (120% of full cost). The following table compares the actual selling price used with the targeted selling price:

Exhibit (2)

Product price	STD Tent	DEL Tent	ULT Tent
Target selling price	$595.20	$724.80	$902.40
Actual selling price	$585.00	$705.00	$940.00

Due to price competition from other Tent manufacturers, Sahara (STD) Tents were selling at $585, approximately $10 below their target price of $595.20. Moreover, Doha Camping Companys competition had forced management to reduce the price of the DEL Tent to $705, almost $20 below its target price of $724.80. Even at this lower price, the sales team were having difficulty in getting orders for its planned volume of DEL Tent production. Fortunately, the disappointing profitability of STD and DEL model Tents was partially offset by the greater-than expected profits from the ULT line of Tents. Doha Camping Companys sales personnel had discovered that the company was swamped with orders when the Ultimate Tents target price of $902.40 was charged. Consequently, management had raised the price on the ULT Tents several times and eventually the product price ended to be $940. Even at

this price, Doha Camping Companys customers did not seem to hesitate to place orders. Moreover, the companys competitors did not mount a challenge in the market for the ULT line of Tents. Doha Camping Companys management was pleased to have a niche for the ULT Tent market, which appeared to be a highly profitable, low-volume specialty product. Nevertheless, concern continued to mount in Doha about the difficulty in the Sahara STD and DEL Tent markets. After all, these were the Doha plants bread-and-butter products, with projected annual sales of 10,000 STD Tents, 8,000 DEL Tents and 2000 UTL Tents. New costing system and data collection Doha Camping Companys director of cost management, Hamilton Burger, had been thinking for some time about a refinement on the Doha plants product-costing system. He wondered how if the traditional, volume-based system was providing management with accurate data about product costs. Burger had read about Activity based Costing (ABC) systems, which follows a two-stage procedure to assign overhead costs to products. Doha Camping Company had formed a team for collecting data for ABC system. In the first stage, the team identified significant activities in the production of the three products and assigns overhead costs to each activity in accordance with the cost of the organizations resources of activity cost pools. In stage two of the activity-based costing project, the team identified cost drivers for each activity cost pool have been used to Doha Camping Companys three product lines as shown in the following exhibit: Exhibit (3)

Activity Cost Poo	Activity Measure	Total Cost	STD	DEL	ULT	Total Activity
Machinery	Machine hours	$1,242,000	100,000	96,000	34,000	230000
Set-up	Production runs	$210,000	80	80	40	200
Purchasing	Purchase orders	$300,000	200	192	208	600
Material-Handling	Production runs	$340,000	80	80	40	200
Quality-Assurance	Inspection hours	$110,000	800	800	600	2,200
Packing/Shipping	Shipments	$264,000	1,000	800	400	2.200
Engineering Design	Engineering hours	$130,000	500	400	400	1,300
Facility	Machine hours	$2,300,000	100,000	96,000	34,000	230,000

ABC based customer profitability analysis TWO more years have passed, and the company has successfully implemented its activity- based costing system in its Doha plant. At a recent strategy meeting with their senior company management team, Doha Camping Companys president and CEO expressed interest in assessing the profitability of the entire companys various customer relationships. They found support for the idea from the director of cost management, who had been reading about customer-profitability analysis in some of his professional journals. The companys marketing manager also expressed interest in customerprofitability analysis, since he has concerned about the profitability of a couple of Doha Camping Companys customers in particular. We have a few customers who seem to want the moon and the stars when it comes to customer service, he complained. I know the customer is always right and all, but you really have to wonder if were making any money from a couple of these customers, what with all the extra design and packaging they demand. And some of the other customers seem to require an awful lot of extra attention to sales calls, order processing, and billing. If we had a better idea of each customers profitability, it would help our marketing and sales staffs to focus their efforts. The controller soon had his cost management staff attacking the customer-profitability analysis that the president had requested. The first step required an activity -based costing analysis of certain costumer related costs that could seriously affect a customers profitability. Recall that ABC analysis relies on a cost hierarchy with cost levels, such as unit-level, batch-level, product-line-level, customer-level, and facility or general operations- level costs. In this use of activity-based costing, the cost management team is focusing on the customer-related costs. After an extensive analysis and several interviews with personnel throughout Doha Camping Company, the cost management team came up with the ABC analysis in following table: Based on the activity-based costing information, the cost management team assessed the profitability of each of Doha Camping Companys customer relationships. Detailed information from that analysis for five of these customers appears in the following table:

Exhibit (4)

	Tents Lines	Total sold units	Customer 1	Customer 2	Customer 3	Customer 4	Customer 5
sold units of tents	STD	8,000	3,000	5000	0	0	0
	DEL	6000	1,500	1,000	3500	0	0
	ULT	6000	0	0	0	4,000	2,000
	Total	20,000	4,500	6,000	3,500	4,000	2,000

Exhibit (5)

Selling and admin costs:	Cost driver base	Cost pool	Total quantity of activities	Customer 1	Customer 2	Customer 3	Customer 4	Customer 5
General administration cost	Orders	$1,000,000	1030	34	35	57	448	456
Customer related costs
Order processing	Orders	168000	1030	34	35	57	448	456
Sales contracts	Contracts	120300	698	10	24	35	241	388
Sales visits	Visits	201000	201	44	20	47	58	32
Shipment processing	Shipments	188800	843	165	139	220	223	96
Billing and collection	Invoices	160000	818	110	88	120	240	260
Design engineering changes	Design engineering changes	850000	770	30	40	50	280	370
Special packaging	Units packaged	300840	4763	200	683	850	1110	1920
Special handling	Units handled	181840	20000	4500	6000	3500	4000	2000
Total customer related costs		2,170,780
Total selling and admin costs		3170780

Requirements:

Your team has been invited by the management of Doha Camping Company to present an overview of the issues facing the company. You are required to write a report to the management of Doha Camping Company, addressing the concern of Doha Camping Company concern about the relevance of its current costing and billing systems as well as companys thinking in implementing new costing system:

1. Information and decision making (Total marks: 3)

1.1. The management of Doha Camping Company notes that cost accuracy is crucial to rationalise decision making process in short and long-term for customer retainment. By using all relevant data and EXCEL sheet, your team have been asked to determine the following:

1.1.1. (a) product cost, (b) selling price and (c) product profitability using actual prices for STD, DEL and ULT using volume based costing systems. (1.5 marks)

1.1.2. (a) product cost, (b) selling price and (c) product profitability using actual prices for STD, DEL and ULT using activity based costing (ABC) systems. (1.5 marks)

2. Customer profitability (Total marks: 7)

2.1. By using EXCEL sheet and estimated product cost calculated in (1.1), determine profitability of five customers using actual prices at both volume and activity based costing systems (5 marks). Then, explain why the two costing systems provide different customer profits (2 marks).

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