Question

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

  

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.)

Gold Silver

total gross margin

customer representative salaries and bonuses

promotion costs

excess of gross margin over customer cost

Answer 1

SOLUTION

A.

	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

Explanation-

Customer Costs	Gold ($)	Silver ($)
Number of customers	40,000	70,000
Number of customer representatives (40,000/1,000), (70,000/10,000)	40	7
Average gross margin per customer	710	310
Total gross margin ($710 * 40,000), ($310 * 70,000)	28,400,000	21,700,000
Customer representative salary (@ $80,000 per customer representative)	3,200,000	560,000
Customer representative bonus (@ 10% of gross margin)	2,840,000	2,170,000
Promotion costs (80% Gold, 20% Silver)	3,920,000	980,000
Excess of gross margin over customer cost	18,440,000	17,990,000