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.
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:

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.

Transcribed Image Text:

BIG APPLE DESIGN COMPANY Customer-Profitabllity Graph For the Month Ended March 31 $8,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 -1,000 -2,000 -3,000 -4,000 -5,000 $5,500 $4,500 $4,000 2 4 numbe -$2,000 $5.000