SkiBlu, Ltd., divides its customers into Gold customers and Silver customers. Th

Question

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 80 percent of its promotion costs on Gold customers to encourage their loyalty.

  

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. (Do not round intermediate calculations.)

b. Which customers are more profitable?

Gold or Silver?   

Customer Costs Total Gold Silver Number of customers 110,000 40,000 70,000 Average customer representative salary $ 80,000 $ 80,000 Promotion costs $ 4,900,000 Average gross margin per customer $ 710 $ 310

Explanation / Answer

SOLUTION

(A)

Explanation-

(B) Gold customers are more profitable than silver customers after considering the costs of the representative and the promotion costs.

Gold ($) Silver ($) Total gross margin 28,400,000 21,700,000 Customer representative salaries & bonuses 6,040,000 2,730,000 Promotion costs 3,920,000 980,000 Excess of gross margin over customer cost 18,440,000 17,990,000

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