Question: Customer Profitability
Louise Fairbern operates Interiors by Louise, an interior design consulting and window treatment fabrication business.
Her business is made up of two different distribution channels: a consulting business in which Louise serves two architecture firms (Adams and Betz), and a commercial window treatment business in which Louise designs and constructs window treatments for three commercial clients (Chatham, Dedham and Elm).
Louise wishes to evaluate the profitability of her two architecture-firm clients and three commercial window treatment clients, as well as evaluate the profitability of each of the two channels and the business as a whole. Information relating to the most recent quarter is:
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Adams
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Betz
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Chatham
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Dedham
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Elm
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Gross Revenue
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$234 000
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$188 800
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$357 380
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$147 840
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$73 200
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Direct Costs
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147 000
|
117 200
|
218 400
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115 720
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57 040
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The total overhead costs are $340 400. Louise estimates that 25% of her overhead costs relate directly to her architectural business, 40% directly to her window-treatment business, and the remainder are general in nature.
On the revenues above, Louise gave a 10% discount to Adams to lure this customer from a competitor and gave a 5% discount to Elm for advance payment in cash.