Estimate bfg customer and overall profitability


Problem:

Beaujolais Financial Group (BFG) segments its customers into premium members, who purchase extensive services, and standard members, who purchase minimal services.  It offers premium members a 10 percent discount on the total package of services purchased but requires standard members to pay full price. BFG devotes one full-time customer representative per 100 premium members and one per 1,000 standard members.  Customer representatives receive salaries and a bonus of 1 percent of customer revenue.  BFG estimates that it spends twice as much on total promotions for premium members to encourage their loyalty.  General and administrative cost, which is not traced to customers, is $2,400,000 per year.  Use this additional information to complete the following requirements:

Customer Service Resources

Total

Premium

Standard

Number of customers

125,000

45,000

80,000

     Average sales salary/year

 

$35,000

$35,000

Promotion costs

$2,000,000

 

 

Average revenue per customer (before discount)

 

$440

$50

 Required:

a. Estimate BFG’s customer and overall profitability.

b. Critique BFG’s customer service policies and measurements.

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Accounting Basics: Estimate bfg customer and overall profitability
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