Ellie Mosk, CEO of X-Space Industries, decided to expand the company's product offering beyond the core model rocket business. After investigation, she decided to set up a separate division to design and manufacture products for the drone market. Several companies were interested in having X-Space develop these drones, and financial results, to date, have been encouraging. Revenue was $4 million, gross margins have been running about 40%, and the customer sales and support costs were $1 million. However, there is a growing concern that some customers require a disproportionate share of the sales and support resources, and the true profitability of the customers is unknown. Data were collected to support an analysis of customer profitability: Activity Sales visits Product modifications Phone calls E-mail/electronic communications Cost Driver Sales visit days Number of modifications Number of minutes Number of communications Total Cost $ 493,000 277,000 93,700 179,000 $1,042,700 Customer Visit Days I Una UI Revenue $ 407,000 507,000 607,000 1,170,000 1,570,000 $4,261,000 o Gross Profit $ 157,000 207,000 237,000 427,000 597,000 $1,625,000 Phone Electronic Modifications Minutes Communications 1,200 625 1,290 875 1,540 1,170 60 1,890 2,170 2,290 2,420 200 8,210 7,260 40 100 70 Totals 270 Required: 1. Management felt the easiest way to allocate the sales and support costs was based on the total revenue. Using total revenue as the allocation base, determine the profitability of each of the five customers. 2. Management felt that because the data revealed some customers require a disproportionate share of sales and support resources, activity-based costing should be used to determine customer profitability. Use ABC to prepare a customer profitability analysis. Required 1 Required 2 Management felt the easiest way to allocate the sales and support costs was based on the total revenue. Using total revenue as the allocation base, determine the profitability of each of the five customers. (Round your intermediate calculations and final answers to 2 decimal places.) Customer Gross Profit Share of Support Costs Based on Revenue Profit After Support Costs Profit % $ 157,000 207,000 237,000 427,000 597,000 1,625,000 $ $ Totals $ 0.00 $ 0.00 Required 1 Required 2 ------- --------- Management felt that because the data revealed some customers require a disproportionate share of sales and support resources, activity-based costing should be used to determine customer profitability. Use ABC to prepare a customer profitability analysis. (Round your intermediate calculations and final answers to 2 decimal places.) ABC Costs Net Profit After Support Costs Net Profit % Customer A B Gross Profit $ 157,000 207,000 237,000 427,000 $ 597,000 $ 1,625,000 E Totals $ 0.00 $ 0.00
