Date: March 12, 2012
Course: Management Accounting & Control
Case: Session 3: Owens & Minor (A)

Date: March 12, 2012
Course: Management Accounting & Control
Case: Session 3: Owens & Minor (A)

Case Background:

Who: Jose Valderas, divisional VP for Owens & Minor (O&M)
What: How does O&M sell ABP (activity based pricing) to Ideal? Could they implement ABP to help Ideal?
Why: O&M needs to improve margins; by understanding where costs are derived from, they can then pass those costs onto the customer. O&M needs to eliminate the cost-plus system and would like to move to cost-plus zero with monthly fee based on activity levels

Case Overview: * O&M is a medical and surgical …show more content…
self-produced products) *

2. Evaluate the impact cost-plus pricing has on distributors, customers, and suppliers. * For distributors, they face higher operating costs (in 1995 was 7.6% of sales), and huge inventory carrying costs. In 1995, quick assets ratio for O&M was 1.02. Interest expenses steadily climbing as a result of large inventories. * For customers, simplifies the budgeting process by knowing exact costing for products

* For suppliers, is there an impact???

3. What effect will ABP have on customer behavior?
The goal with ABP is to provide incentive for customers to change their purchasing habits. By providing financial incentive to encourage a change in behavior (in this case, reduce the number of orders and reduce the number of line items), the control of cost savings is in the hands of the consumer.

4. Explain Exhibit 5. How does the pricing matrix work?
The fewer the number of lines and the fewer number of orders would reduce the cost to the consumer (as this is then lowering the fixed and variable costs to O&M).

* How do the