Calculate and present the budgeted profit for each of Gibson’s clients for each of the years 2016 through 2019, using the current costing system (i.e., the one described in the case). Note: The only information provided in this case is budgeted information. “Actuals” are not included / available (specifically). This is because in this case we are trying to avoid complicating the issue via inevitable differences between what is budgeted and what actually is realized. Nonetheless, you can assume that the trend in the budgets from year to year reflects a trend in the actuals realized by the firm, as it is likely that the budgets are informed by the prior year actuals. For example, the 2016 budget is likely reflective of the 2015 actuals. The 2017 budget is likely reflective of the 2016 actuals. And so on.
Based on what you calculate as the profit for each year, you will find the detail that Billy Gibson sees and has created his concern regarding client profitability. In particular, Billy sees that there are unprofitable clients. What recommendation would you make to Billy about his plans to eliminate unprofitable clients? Provide an analysis that sufficiently and convincingly supports your recommendation.
