Question

You own a credit card company. You want to evaluate the profitability of customers A and B. customer A customer B $600 credit card balance $1,500 number of transactions 150 60 number of customer-support calls 60 3 The only source of revenue from customers is the interest that you charge on credit card balances. You charge customers an interest rate of 10 %. Thus, if the credit card balance is $1,000, revenue is $1000*0.1-$100 Variable costs are zero for simplicity. From your ABC system, the activity rates are $0.25 per transaction and $2 per customer-support call a) Compute revenue, costs, and profit margin for each customer. customer B customer A Revenue $ Variable costs Contribution margin $ Allocated costs transactions Allocated costs customer support Profit margin Enter negative numbers with a minus sign, i.e., a loss of $200 should be entered as -200, not as (200) or ($200)

Answer 1

Computation of revenue, Costs, and Profit margin for each customer
	Customer A		Customer B
Revenue A: 1500*10% B: 600*10%	$	150	$	60
Variable costs	$	0	$	0
Contribution Margin (revenue - Variable costs)	$	150	$	60
Allocated costs - Transactions A: 150*0.25 B: 60*0.25	$	37.5	$	15
Allocated costs - Customer support A:60*2 B:3*2	$	120	$	6
Profit Margin A: (150 - 37.5 - 120) B: (60 - 15 - 6)	$	-7.5	$	39