There are few of similar question like this here in Chegg which are not correct,
ID: 2521152 • Letter: T
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There are few of similar question like this here in Chegg which are not correct, don't just copy this from an already answer question and just post it here because I will report you. If you are going to answer this question make sure, you do it accurately, otherwise please don't answer this question. thanks
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Remington 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 Remington does contract work for the two major manufacturers plus three companies in the second tier.
Because competition is intense in the industry, Remington 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, Remington Aeronautics’ CEO, John Remington, 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.
Remington Aeronautics’ non-manufacturing overhead consist 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
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
A
17
3.4
106
23
220
82
B
12
2.4
130
36
354
66
C
3
.6
52
10
180
74
D
4
.8
34
6
138
18
E
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 A
24 hours
Customer B
36 hours
Customer C
5 hours
Customer D
0 hours
Customer E
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.
Required
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 and 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.
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
Explanation / Answer
‘000’S
A
B
C
D
E
SALES
17000
12000
3000
4000
3
GP
3400
2400
600
.8
.6
GP%
20
20
20
20
20
LESS:
SALES ACTIVITIES
351.200
401.600
239.200
111.200
65.200
GP LESS
SALES ACT
3,048.8
1998.4
360.8
688.8
534.8
GP % AFTER SALES ACTIVITIES
17.9
17%
12%
17.2%
17.8
LESS: ADM COST ON BASIS OF SALES
17/39
X
2.5M
12/39
3/39
4/39
3/39
1089743
769230
192308
256410
192308
GP AFTER ADMIN EXP ON SALES%
1959056
1229.17
ADD BACK
CORP JET USE
19200
28800
4000
0
4800
GP % ON SALES
11.6%
10.5
5.75
10.8
11.5
‘000’S
A
B
C
D
E
SALES
17000
12000
3000
4000
3
GP
3400
2400
600
.8
.6
GP%
20
20
20
20
20
LESS:
SALES ACTIVITIES
351.200
401.600
239.200
111.200
65.200
GP LESS
SALES ACT
3,048.8
1998.4
360.8
688.8
534.8
GP % AFTER SALES ACTIVITIES
17.9
17%
12%
17.2%
17.8
LESS: ADM COST ON BASIS OF SALES
17/39
X
2.5M
12/39
3/39
4/39
3/39
1089743
769230
192308
256410
192308
GP AFTER ADMIN EXP ON SALES%
1959056
1229.17
ADD BACK
CORP JET USE
19200
28800
4000
0
4800
GP % ON SALES
11.6%
10.5
5.75
10.8
11.5
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