The issue here is not only determining the profit contribution of customers, including accurate costs for the products they buy, but also understanding the elements of customer-specific work that comprise the entire cost to serve each of them. When companies take the time to define and measure their in-house work activities and directly associate them to the bigger and smaller consumers of their work, the obvious occurs. And both the profits and losses are usually big numbers. The company only banks the net difference. The major reason is no one sees it.
Some people intuitively think it but can t prove it.
In many organisations, the cost accounting system is referred to as a bunch of lies that we all agree to. The traditional financial reporting in no way reveals the separate profit and losses for several reasons. In financial accounting terms, the costs for selling, advertising, marketing, logistics, warehousing and distribution are immediately charged to the time period in which they occur. Consequently the accountants are not tasked to trace them to customer segments. Today s selling, merchandising, and distribution costs are no longer trivial costs - they are sizable.