Question

Customer Profitability Analysis
Gonalong, Inc. has 10 customers that account for all of its $4,520,000 of net income. Its activity-based costing system is able to assign all costs, except for $650,000 of general administrative costs, to key activities incurred in connection with serving its customers. A customer profitability analysis based on activity costing produced the following customer profits and losses:

Customer	#1	$366,000
	#2	614,000
	#3	(247,000)
	#4	999,000
	#5	1,060,000
	#6	882,000
	#7	598,000
	#8	292,000
	#9	(105,000)
	#10	711,000
Total		$5,170,000

Prepare a customer profitability profile like the one in Exhibit 6.3. The following link includes an Excel worksheet to create the profitability profile graph: profitability_profile_template.

Using the customer profitability analysis provided in the exercise to calculate the following profits.
(i) Calculate the total profits from the 3 most profitable customers
$Answer

(ii) Calculate the total profits for the 5 most profitable customers
$Answer

(iii) Calculate the total profits for the 8 most profitable customers
$Answer

(iv) Calculate the total profits for the 9 most profitable customers
$Answer

Answer 1

Customer	Profit	% of total Profit i.e Profit / 5170000	Top 3	TOP 5	top 8	TOP 9
#1	$366,000	7.08%			7	7
#2	614,000	11.88%		5	5	5
#3	-247,000	-4.78%
#4	999,000	19.32%	2	2	2	2
#5	1,060,000	20.50%	1	1	1	1
#6	882,000	17.06%	3	3	3	3
#7	598,000	11.57%			6	6
#8	292,000	5.65%			8	8
#9	-105,000	-2.03%				9
#10	711,000	13.75%		4	4	4
	$5,170,000

Rankings are based on high to low percentage

That can also be calculated using excel conditional function.

TOP 3 customers' Profit

Customer	Profit	Rank
#4	999,000	2
#5	1,060,000	1
#6	882,000	3
	2,941,000

TOP 5 customers' Profit

Customer	Profit	Rank
#2	614,000	5
#4	999,000	2
#5	1,060,000	1
#6	882,000	3
#10	711,000	4
	4,266,000

TOP 8 customers' Profit

Customer	Profit	Rank
#2	614,000	5
#4	999,000	2
#5	1,060,000	1
#6	882,000	3
#10	711,000	4
#7	598,000	6
#1	$366,000	7
#8	292,000	8
	5,522,000

TOP 9 customers' Profit

Here customer no # is generating loss still considered in top 9 as from remain 2 loss generating customer this customer is generating less loss.

Customer	Profit	Rank
#2	614,000	5
#4	999,000	2
#5	1,060,000	1
#6	882,000	3
#10	711,000	4
#7	598,000	6
#1	$366,000	7
#8	292,000	8
#9	-105,000	9
	5,417,000