Big Apple Design Company specializes in designing commercial office space in Chicago. The firm’s president recently reviewed the following income statement and noticed that operating profits were below her expectations. She had a hunch that certain customers were not profitable for the company and asked the controller to perform a customer-profitability analysis showing profitability by customer for the month of March.

The controller provided the following customer-profitability graph:

Required: Put yourself in the position of Big Apple’s controller and write a memo to the president to accompany the customer-profitability graph. Comment on the implications of the customer-profitability analysis and raise four or more questions that should be addressed by the firm’s management team.

Transcribed Image Text:

Sales revenue Cost of services billed. Gross margin......... Marketing and administrative costs Operating profit........ BIG APPLE DESIGN COMPANY Income Statement For the Month Ended March 31 $300,000 255,000 $ 45,000 30,000 $ 15,000