Roger?s Aeronautics, LTD, is a British aeronautics subcontract company that designs and manufactures electronic control systems for commercial airlines. The vase 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 Roger?s does contract work for the two major manufacturers plus three companies in the second tier. Because competition is intense in the industry, Roger?s 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 and acceptable net profit margin. With declining profit margins in recent years, Roger?s Aeronautics? CEO, Len Rogers, has become concerned that the costs of obtaining contracts and maintain 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 consist of $2.5 million of general and administrative 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 Cost Driver Cost per Unit of Activity 1 Sales Visit Number of visits $1,400 2 Product adjustment Number of adjustments $1,200 3 Phone and email contacts Number of calls/contacts $200 4 Promotion and entertainment events Number of events $1,600 Financial 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 3.4 106 23 220 82 2 12 2.4 130 36 354 66 3 3 .6 52 10 180 74 4 4 .8 34 6 138 18 5 3 .6 16 5 104 10 39 7.8 338 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 the 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 Roger?s Aeronautics that shows the gross profits less all expenses that can reasonably be assigned to the five customers B) Now assuming that the remaining general administrative costs are assigned to the five customers based on relative sales dollars, calculate net profit for each customer C) Discuss the merits of the analysis in part A versus part B

Roger's Aeronautics, LTD, is a British aeronautics subcontract company that designs and manufactures electronic control systems for commercial airlines. The vase 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 Roger's does contract work for the two major manufacturers plus three companies in the second tier. Because competition is intense in the industry, Roger's 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 and acceptable net profit margin. With declining profit margins in recent years, Roger's Aeronautics' CEO, Len Rogers, has become concerned that the costs of obtaining contracts and maintain 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 consist of $2.5 million of general and administrative 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 Cost Driver Cost per Unit of Activity 1 Sales Visit Number of visits $1,400 2 Product adjustment Number of $1,200 adjustments 3 Phone and email contacts Number of $200 calls/contacts 4 Promotion and entertainment Number of events $1,600 events Financial activity data on the five customers follows (Sales and Gross Profit data in millions): Quantity of Sales and Support Activity Customer Sales Gross Activity 1 Activity 2 Activity 3 Activity 4 Profit 1 17 3.4 106 23 220 82 2 12 2.4 130 36 354 66 3 3 .6 52 10 180 74 4 4 .8 34 6 138 18 5 3 .6 16 5 104 10 39 7.8 338 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 the 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 Roger's Aeronautics that shows the gross profits less all expenses that can reasonably be assigned to the five customers B) Now assuming that the remaining general administrative costs are assigned to the five customers based on relative sales dollars, calculate net profit for each customer C) Discuss the merits of the analysis in part A versus part B