Question:
Customer Profitability
Lighthouse Company divides its customers into Premium customers and Standard customers. The company has one full-time customer representative per 100 Premium customers and one full-time customer representative per 1,000 Standard customers. Customer representatives receive salaries plus bonuses of 1 percent of customer gross margin. Lighthouse spends 80 percent of its promotion costs on Premium customers to encourage their loyalty.
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Customer Costs
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Total
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Premium
|
Standard
|
|
Number of customers
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10,000
|
2,000
|
8,000
|
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Average customer representative salary
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|
$60,000
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$60,000
|
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Promotion costs
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$1,000,000
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|
|
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Average gross margin per customer
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$ 1,500
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$ 150
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Required
a. What is the excess of gross margin over customer costs for each category of customer?
b. Write a short memo that evaluates customer profitability.