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

Customer Costs	Total			Gold			Silver
Number of customers		49,000			39,000			10,000
Average customer representative salary				$	79,000		$	79,000
Promotion costs	$	4,800,000
Average gross margin per customer				$	705		$	300

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?

Answer 1

Computation of Gross Margin over Customer Cost for each category
Particular	GOLD CUSTOMER	SILVER CUSTOMER
Gross Margin	$14,800,000	$8,400,000
	(39000X 705)	(10000X 300)
Less- Representative Salary	($1,554,000)	($252,000)
	(39000/1000 X 79000)	(10000/1000)X 79000
Less: Bonus (Gross Margin X10%)	($1,480,000)	($840,000)
Less: Promotion Cost (4800000X 90%, 10%)	($4,320,000)	($480,000)
Excess Of Gross Margin Over Customer Cost	$22,154,000	$9,972,000

Gold Customer are more profitable