ve per 1,000 Gold customers and one full-time customer representative per 10,000 Silver customers. Customer representatives receive salaries plus bonuses of 10 percent of customer gross margin. SkiBlu spends 90 percent of its promotion costs on Gold customers to encourage their loyalty.

ve per 1,000 Gold customers and one full-time customer representative per 10,000 Silver customers. Customer representatives receive salaries plus bonuses of 10 percent of customer gross margin. SkiBlu spends 90 percent of its promotion costs on Gold customers to encourage their loyalty.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter15: Managing Short-term Assets

Section: Chapter Questions

Problem 13PROB

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Problem 10-58 (Algo) Customer Profitability (LO 10-4)

SkiBlu, Ltd., divides its customers into Gold customers and Silver customers. The company has one full-time customer representative per 1,000 Gold customers and one full-time customer representative per 10,000 Silver customers. Customer representatives receive salaries plus bonuses of 10 percent of customer gross margin. SkiBlu spends 90 percent of its promotion costs on Gold customers to encourage their loyalty.

Customer Costs	Total	Gold	Silver
Number of customers		121,000			41,000		80,000
Average customer representative salary				$	81,000	$	81,000
Promotion costs	$	5,000,000
Average gross margin per customer				$	715	$	320

Required:

a. Calculate the totals of the items below for both gold and silver customers, as well as the excess of gross margin over customer costs for each category.

b. Which customers are more profitable?

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