“Rogers 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 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 and acceptable net profit margin. With
declining profit margins in recent years, Rogers 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 CEOs salary and bonus and the cost of
operating the companys 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 Rogers 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 BRogers 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 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 and acceptable net profit margin. With
declining profit margins in recent years, Rogers 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 CEOs salary and bonus and the cost of
operating the companys 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:ActivityCost DriverCost per Unit of
Activity1Sales VisitNumber of visits$1,4002Product adjustmentNumber of adjustments$1,2003Phone and email contactsNumber of calls/contacts $2004Promotion and entertainment eventsNumber of events$1,600Financial activity data on the five
customers follows (Sales and Gross Profit data in millions):Quantity of Sales and
Support ActivityCustomerSalesGross ProfitActivity 1Activity 2Activity 3Activity 41173.410623220822122.4130363546633.652101807444.83461381853.616510410397.833880996250In 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 124 hoursCustomer 236 hoursCustomer 35 hoursCustomer 40 hoursCustomer 56 hoursThe 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 customersB)
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”