Question

Rogers Aeronautics, LTD, is a British aeronautics subcontract company that designs and manufactures electronic control systems for commercial airlines. The vast majority of all commercial aircraft are manufactured by Boeing in the U.S. and Airbus in Europe; however, there is a relatively small group of companies that manufacture narrow-body commercial jets. Assume for this exercise that Rogers does contract work for the two major manufacturers plus three companies in the second tier.
Because competition is intense in the industry, Rogers has always operated on a fairly thin 20% gross profit margin; hence, it is crucial that it manage non-manufacturing overhead costs effectively in order to achieve an acceptable net profit margin. With declining profit margins in recent years, Rogers Aeronautics' CEO, Len Rogers, has become concerned that the cost of obtaining contracts and maintaining relations with its five major customers may be getting out of hand. You have been hired to conduct a customer profitability analysis.
Rogers Aeronautics' non-manufacturing overhead consists of $2.5 million of general and administrative (G&A) expense, (including, among other expenses, the CEO's salary and bonus and the cost of operating the company's corporate jet) and selling and customer support expenses of $3 million (including 5% sales commissions and $1,050,000 of additional costs). The accounting staff determined that the $1,050,000 of additional selling and customer support expenses related to the following four activity cost pools:

Activity	Activity Cost Driver	Cost per Unit of Activity
1. Sales visits	Number of visit days	$800
2. Product adjustments	Number of adjustments	1,300
3. Phone and email contacts	Number of calls/contacts	50
4. Promotion and entertainment events	Number of events	2,000

Financial and activity data on the five customers follows (Sales and Gross Profit data in millions):

			Quantity of Sales and Support Activity
Customer	Sales	Gross Profit	Activity 1	Activity 2	Activity 3	Activity 4
#1	$17.00	$3.40	106	23	220	82
#2	12.00	2.40	130	36	354	66
#3	3.00	0.60	52	10	180	74
#4	4.00	0.80	34	6	138	18
#5	3.00	0.60	16	5	104	10
	$39.00	$7.80	338	80	996	250

In addition to the above, the sales staff used the corporate jet at a cost of $800 per hour for trips to customers as follows:

Customer #1	24 hours
Customer #2	36 hours
Customer #3	5 hours
Customer #4	0 hours
Customer #5	6 hours

The total cost of operating the airplane is included in general and administrative expense; none is included in selling and customer support costs.

a. Prepare a customer profitability analysis for Rogers Aeronautics that shows the gross profits less all expenses that can reasonably be assigned to the five customers.

Notes:

• Enter figures as complete numbers (with all zeros). For example, 17 million is 17,000,000.
• Do not use negative signs with any answers.
• Round return on sales to one decimal place. (Ex: 10.4%)

	Customer #1	Customer #2	Customer #3	Customer #4	Customer #5
Sales	Answer	Answer	Answer	Answer	Answer
Cost of goods sold	Answer	Answer	Answer	Answer	Answer
Gross profit	Answer	Answer	Answer	Answer	Answer
Less expenses
Sales commissions	Answer	Answer	Answer	Answer	Answer
Sales visits	Answer	Answer	Answer	Answer	Answer
Product adjustments	Answer	Answer	Answer	Answer	Answer
Phone and other remote contacts	Answer	Answer	Answer	Answer	Answer
Promotion and entertainment	Answer	Answer	Answer	Answer	Answer
Corporate jet expense	Answer	Answer	Answer	Answer	Answer
Customer profitability	Answer	Answer	Answer	Answer	Answer
Customer return on sales	Answer	Answer	Answer	Answer	Answer

b. Now assuming that the remaining general and administrative costs are assigned to the five customers based on relative sales dollars, calculate net profit for each customer.
Enter figures as complete numbers (with all zeros). For example, 1 million is 1,000,000.
Do not use negative signs with any answers.
Do not round during calculation G&A expenses. Round final G&A expenses to the nearest whole number.
Round return on sales to one decimal place. (Ex: 10.4%)

	Customer #1	Customer #2	Customer #3	Customer #4	Customer #5
Customer profitability	Answer	Answer	Answer	Answer	Answer
Less G & A expense	Answer	Answer	Answer	Answer	Answer
Net customer profitability	Answer	Answer	Answer	Answer	Answer
Net customer return on sales	Answer	Answer	Answer	Answer	Answer

Answer 1

Part A-

Heading	Customer 1	Customer 2	Customer 3	Customer 4	Customer 5
Sales	17,000,000	12,000,000	3,000,000	4,000,000	3,000,000
Cost of Goods sold	13,600,000	9,600,000	2,400,000	3,200,000	2,400,000
Gross Profit	3,400,000	24,00,000	600,000	800,000	600,000
Less Expenses-
Sales commissions	850,000	600,000	150,000	200,000	150,000
Sales visits	84,800	104,000	41,600	27,200	12,800
Product adjustments	29,900	46,800	13,000	7,800	6,500
Phone and other remote contacts	11,000	17,700	9,000	6,900	5,200
Promotion and entertainment	164,000	132,000	148,000	36,000	20,000
Corporate jet expense	19,200	28,800	4,000	0	4,800
Customer profitability	2,241,100	1,470,700	234,400	522,100	400,700
Customer return on sales	13.2%	12.3%	7.8%	13.1%	13.4%

Part B

	Customer 1	Customer 2	Customer 3	Customer 4	Customer 5
Customer profitability	2,241,100	1,470,700	234,400	522,100	400,700
Less G & A expense	1,089,746	769,230	192,307	256,410	192,307
Net customer profitability	1,151,354	701,470	42,093	265,590	208,393
Net customer return on sales	6.7%	5.8%	1.4%	6.6%	6.9%