Which method identifies specific costs associated with serving each customer?

Which method identifies specific costs associated with serving each customer?

• A. Single allocation criteria
• B. Activity-based costing
• C. Cost-to-serve
• D. Direct costing

Answer: (B)

The method that identifies specific costs associated with serving each customer is cost-to-serve. This approach focuses on understanding the total cost incurred to serve individual customers, which encompasses various factors such as transportation, warehousing, packaging, and customer service. By analyzing these costs, businesses can determine profitability on a customer-by-customer basis. Activity-based costing is related but has a slightly different focus. It allocates costs to activities based on their use of resources, which can help in understanding overall cost drivers but doesn't specifically tailor costs to individual customers in the same direct manner as cost-to-serve does. Single allocation criteria and direct costing are less focused on the nuances of customer service expenses. Single allocation criteria may provide a broader, less detailed view of costs, while direct costing is concerned mainly with variable costs and does not effectively capture the full picture of customer-related expenses that can vary widely depending on service levels and requirements.

The method that identifies specific costs associated with serving each customer is cost-to-serve. This approach focuses on understanding the total cost incurred to serve individual customers, which encompasses various factors such as transportation, warehousing, packaging, and customer service. By analyzing these costs, businesses can determine profitability on a customer-by-customer basis.

Activity-based costing is related but has a slightly different focus. It allocates costs to activities based on their use of resources, which can help in understanding overall cost drivers but doesn't specifically tailor costs to individual customers in the same direct manner as cost-to-serve does.

Single allocation criteria and direct costing are less focused on the nuances of customer service expenses. Single allocation criteria may provide a broader, less detailed view of costs, while direct costing is concerned mainly with variable costs and does not effectively capture the full picture of customer-related expenses that can vary widely depending on service levels and requirements.