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?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter14: The Balanced Scorecard And Corporate Social Responsibility

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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?

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