Roger’s Aeronautics, LTD, is a British aeronautics subcontract company that designs and

Roger’s Aeronautics, LTD, is a British aeronautics subcontract company that designs andmanufactures electronic control systems for commercial airlines. The vase majority of allcommercial 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 bodycommercial jets. Assume for this exercise that Roger’s does contract work for the twomajor manufacturers plus three companies in the second tier.Because competition is intense in the industry, Roger’s has always operated on a fairlythin 20% gross profit margin; hence, it is crucial that it manage non-manufacturingoverhead costs effectively in order to achieve and acceptable net profit margin. Withdeclining profit margins in recent years, Roger’s Aeronautics’ CEO, Len Rogers, hasbecome concerned that the costs of obtaining contracts and maintain relations with itsfive major customers may be getting out of hand. You have been hired to conduct acustomer profitability analysis.Rogers’ Aeronautics’ non-manufacturing overhead consist of $2.5 million of general andadministrative expense (including, among other expenses, the CEO’s salary and bonusand the cost of operating the company’s corporate jet) and selling and customer supportexpenses of $3 million (including 5% sales commissions and $1,050,000 of additionalcosts).The accounting staff determined that the $1,050,000 of additional selling and customersupport expenses related to the following four activity cost pools:ActivityCost DriverCost per Unit ofActivity1Sales VisitNumber of visits$1,4002Product adjustmentNumber of$1,200adjustments3Phone and email contactsNumber of$200calls/contacts4Promotion and entertainmentNumber of events$1,600eventsFinancial activity data on the five customers follows (Sales and Gross Profit data inmillions):Quantity of Sales and Support ActivityCustomerSalesGrossActivity 1 Activity 2 Activity 3 Activity 4Profit1173.410623220822122.4130363546633.652101807444.83461381853.616510410397.833880996250In addition to the above, the sales staff used the corporate jet at a cost of $800 per hourfor 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 Roger’s Aeronautics that shows thegross profits less all expenses that can reasonably be assigned to the fivecustomersB) Now assuming that the remaining general administrative costs are assigned to thefive customers based on relative sales dollars, calculate net profit for eachcustomerC) Discuss the merits of the analysis in part A versus part B