BIG APPLE DESIGN COMPANY Income Statement For the Month Ended March 31 Sales revenue $300,000 Cost of services billed 255,000 Gross margin . $ 45,000 Marketing and administrative costs 30,000 Operating profit . $ 15,000 The controller provided the following customer-profitability graph: BIG APPLE DESIGN COMPANY Customer-Profitability Graph For the Month Ended March 31 $$8,000 8,000 7,000 6,000 $5,500 5,000 $4,500 $4,000 4,000 3,000 2,000 1,000 6 Customer number 1 2 3 4 -1,000 -2,000 -$2,000 -3,000 -4,000 -5,000 -$5,000 Operating income
Big Apple Design Company specializes in designing commercial office space in Chicago. The firm’s president recently reviewed the following income statement and noticed that operating profits were below her expectations. She had a hunch that certain customers were not profitable for the company and asked the controller to perform a customer-profitability analysis showing profitability by customer for the month of March.
Required: Put yourself in the position of Big Apple’s controller and write a memo to the president to accompany the customer-profitability graph. Comment on the implications of the customer-profitability analysis and raise four or more questions that should be addressed by the firm’s
management team.
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