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Accounting Customer profitability Analysis Problems

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Question;Problem 1-Customer profitability AnalysisGonalong. Inc. has 10 customers that account for all of its $ 4,200.000 of net income. Itsactivity-based costing system is able to assign all costs, except for $ 650,000 of generaladministrative costs, to key activities incurred in connection with serving its customers. Acustomer profitability analysis based on activity costing produced the following customerprofits and losses:Customer#1$306,000#2.624, 000#3 (257,000)#4.. 909,000#5 950,000#6..872,000#7598,000#8.322,000#9(105,000)#10631,000Total..$4,850,000RequiredPrepare a customer profitability profile like the one in Exhibit 18.3CustomerProtabilityProleIfacompanyknowstheamountofprofits(orlosses) generatedbyeachofitscustomers,acustomerprofitabilityprofilecanbepreparedsimilartotheoneillustratedinExhibit18.3.Thishypotheticalcompanyhas350customersandhascurrenttotalprofitsof$5million,butonly200ofitscustomersareprofitable.Cumulativeprofitsreach$7.5millionwhenthe200thcustomerisaddedtothegraph,butthe201stthroughthe350thcustomerscausecumulativeprofitstodeclineto$5millionbecausetheyareunprofitable.Onceacompanyhasprofitabilitydataoneachofitscustomers(orcategoriesofcustomers),onlythencanitproceedtotrytoconvertthemtoprofitability,orseektoterminatetherelationshipwiththosecustomers.JustaswesawthatABCprovidedamodelforproducingmoreaccurateproductcostdata,ABCisalsoavaluabletoolforgeneratingcustomerprofitabilitydata.GraphCumulativeTCumulativeTotalGraphCumulativeTotalCumulativeTotalTotalProfitsCumulativeTotalProfiTotalCumulativeTotalProfits$7.5million$5million0200350CurrentTotalCustomerProfitsCustomersFromMostProfitabletoLeastProfitabCumulativeTotalCumulativeTotalProfits$7.5million$5million0200350CurrentTotalCustomerProfitsCustomersFromMostProfitabletoLeastProfitableCumulativeTotalProfits$7.5million$5million0200350CurrentTotalCustomerProfitsCustomersFromMostProfitabletoLeastProfitableCumulativeTotalProfits$7.5million$5million0200350CurrentTotalCustomerProfitsCustomersFromMostProfitabletoLeastPrProblem 2-Customer Profitability AnalysisRefer to problem 1 Gonalong Inc.Requireda. If Gonalong were to notify customers 3 and 9 that it will no longer be able to providethem services in the future, will that increase company profits by $ 362,000? Why orWhy not?b. B. What is the primary benefit of preparing a customer profitability analysis?

 

Paper#38232 | Written in 18-Jul-2015

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