Project 4

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2019FallMBA641Project4.xlsx
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Project 4 Save your file using your first initial, last name, and name of project.
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This project covers material assigned from following Modules: 19 and 21.
There are 2 different parts that are not related. Complete each part on the appropriate worksheet.
Project 4 Objectives:
1. Develop a customer profitability analysis.
2. Recommend a course of action to management based on the customer profitability analysis.
3. Determine cost-based pricing.
4. Discuss advantages and disadvantages of cost-based pricing.
Grading Rubric for project 4:
Part 1
#1. Each calculation worth .3 pt. 14.5
#2 2
16.5
Part 2
Each question worth 1.5 pts. each 13.5
Total points Project 4 30

Part 1

Part 1
Aeronautics Company designs and manufactures electronic control systems for commercial airlines.
Aeronautics Company does contract work for the two major aircraft makers and three other companies that make the narrow-body commercial jets.
This is a very competitive field that Aeronautics Company operates in.
It is imperative they manage the non-manufacturing overhead costs effectively in order to achieve an acceptable net profit margin.
With declining profit margins in recent years, the CEO has become concerned that the cost of obtaining contracts and maintaining relations with its five customers may be getting out of hand.
You have been hired to conduct a customer profitability analysis.
Below is applicable revenue and cost information you should include in your customer profitability analysis.
Sales
Customer 1 $3,000,000
Customer 2 12,000,000
Customer 3 3,000,000
Customer 4 5,000,000
Customer 5 2,000,000
$25,000,000
Cost of Good Sold (COGS) as a percentage of sales is the following: 82% of Total Sales generated
Aeronautics Company selling and customer support team receives the following sales commissions on each customer account: 4% Sales generated per customer
The accounting staff determined the additional selling and customer support expenses related to the following four activity cost pools and the cost per activity.
Usage of cost driver per customer
Activity Activity Cost Driver Data Cost per unit of activity Customer 1 Customer 2 Customer 3 Customer 4 Customer 5
1. Sales Visits Number of visit days $1,300 106 130 52 34 16
2. Product adjustments Number of adjustments 1,250 23 36 10 6 5
3. Phone and email contracts Number of calls/contracts 150 220 354 180 138 104
4. Promotion and entertainment events Number of events 1,400 82 66 74 18 10
In addition to the above, the sales staff used the corporate jet for trips to customers at a cost per hour as stated below and jet hours used per customer as follows:
There is a cost of $900 hour
Hours used of jet
Customer 1 24
Customer 2 36
Customer 3 5
Customer 4 0
Customer 5 6
Required:
1. Develop a customer profitability analysis for Aeronautics Company that shows the sales, cost of goods sold, gross profit on sales, and each cost as a line item that can be assigned to each of the five customers.
The customer profibility analsysis should show column information for each customer along with a total column for the company.
Include the customer profitability ratio for each customer and the company. The customer profitability ratio should be shown in percentage terms taken out to 2 decimal places. Make sure you use cell references to make all your calculations.
2. Provide a detailed recommendation to management on what type of actions the company should take as a result of this analysis. In your recommendation you need to specifically identify the different customers, for example Customer 1,
from the results of the customer profitability analysis.
Solution: Make sure you use cell references to make all calculations.
#1 Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Total
2. Provide a detailed recommendation to management on what type of actions the company should take as a result of this analysis. In your recommendation you need to specifically identify the different customers, for example Customer 1,
from the results of the customer profitability analysis.

Part 2

Part 2
Communications Unlimited provides support services to its clients.
This company expects to earn an annual return on the assets invested at a rate of: 16%
The company has the following amount invested in the business: $6,000,000
The annual budgeted costs for next year are:
Variable costs Fixed costs
Support Services $400,000 1,900,000
The annual budgeted hours for next year are:
Consulting services 50,000 hours
Required: You must use cell references for all calculations.
1. Determine the Target profit for the company.
2. Determine the markup on variable costs in percentage terms.
3. Determine the variable cost per hour.
4. Determine the revenue per hour that will be charged if variable costs is the basis for markup.
5. Determine the markup on total costs in percentage terms.
6. Determine the total cost per hour.
7. Determine the revenue per hour that will be charged if total costs is the basis for markup.
8. Explain why answers 2-4 in comparison to 5-7 are the same or different.
9. Discuss the advantages and disadvantages of using a cost-based pricing model.
You need to include an outside reference that supports your discussion on advantages and disadvantages of using a cost-based pricing model.
Make sure you include the reference in APA style. Enter your response in the textbox below.

Type or copy your response into this textbox, which must include comments from outside reference to support your discussion of cost-based pricing model. Make sure you provide outside reference with APA citation below your comments.