Problem 10-59 (Algo) Customer Profitability (LO 10-4) Carmel Company has a frequent buyer program for its customers, where the customers can attain an “elite” level based on the number of orders and the total revenue of the orders. There are two elite levels: Platinum and Titanium. The benefits of elite membership include discounts and access to special customer service representatives who can resolve problems. The company has one full-time customer representative per 200 Titanium customers and one full-time customer representative per 2,000 Platinum customers. Customer representatives receive salaries plus bonuses of 1 percent of customer gross margin. Carmel spends 90 percent of its promotion costs on Titanium customers to encourage their loyalty. Customer Costs Total Titanium Platinum Number of customers 34,000 8,000 26,000 Average customer representative salary $ 71,000 $ 71,000 Promotion costs $ 3,150,000 Average gross margin per customer $ 1,620 $ 340 Required: a. Calculate the totals of the items below for both titanium and platinum customers, as well as the excess of gross margin over customer costs for each category. b. Which customers are more profitable?
Problem 10-59 (Algo) Customer Profitability (LO 10-4) Carmel Company has a frequent buyer program for its customers, where the customers can attain an “elite” level based on the number of orders and the total revenue of the orders. There are two elite levels: Platinum and Titanium. The benefits of elite membership include discounts and access to special customer service representatives who can resolve problems. The company has one full-time customer representative per 200 Titanium customers and one full-time customer representative per 2,000 Platinum customers. Customer representatives receive salaries plus bonuses of 1 percent of customer gross margin. Carmel spends 90 percent of its promotion costs on Titanium customers to encourage their loyalty. Customer Costs Total Titanium Platinum Number of customers 34,000 8,000 26,000 Average customer representative salary $ 71,000 $ 71,000 Promotion costs $ 3,150,000 Average gross margin per customer $ 1,620 $ 340 Required: a. Calculate the totals of the items below for both titanium and platinum customers, as well as the excess of gross margin over customer costs for each category. b. Which customers are more profitable?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Problem 10-59 (Algo) Customer Profitability (LO 10-4)
Carmel Company has a frequent buyer program for its customers, where the customers can attain an “elite” level based on the number of orders and the total revenue of the orders. There are two elite levels: Platinum and Titanium. The benefits of elite membership include discounts and access to special customer service representatives who can resolve problems. The company has one full-time customer representative per 200 Titanium customers and one full-time customer representative per 2,000 Platinum customers. Customer representatives receive salaries plus bonuses of 1 percent of customer gross margin. Carmel spends 90 percent of its promotion costs on Titanium customers to encourage their loyalty.
| Customer Costs | Total | Titanium | Platinum | ||||||
| Number of customers | 34,000 | 8,000 | 26,000 | ||||||
| Average customer representative salary | $ | 71,000 | $ | 71,000 | |||||
| Promotion costs | $ | 3,150,000 | |||||||
| Average gross margin per customer | $ | 1,620 | $ | 340 | |||||
Required:
a. Calculate the totals of the items below for both titanium and platinum customers, as well as the excess of gross margin over customer costs for each category.
b. Which customers are more profitable?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education