Question

Question 3: Evaluating customer profitability credit card company. You want to evaluate the profitability of customers A and B You own customer A customer B $400 credit card balance $1,000 number of transactions 100 40 number of customer-support calls 40 2 The only source of revenue from customers is the interest that you charge on credit card balances. You charge customers an interest rate of 40%. Thus, if the credit card balance is $1,000, revenue is $1000 0.4-$400 Variable costs are zero for simplicity. From your ABC system, the activity rates are $1 per transaction and $8 per customer-support call a) Compute revenue, costs, and profit margin for each customer customer A customer B Revenue Variable costs Contribution margin S $ Allocated costs - transactions Allocated costs customer support S Prafit margin Enter negative numbers with a minus sign, i.e., a loss of $200 should be entered as -200, not as (200) or ($200) b) One of the customers is unprofitable. What can you do about this customer? (select all that apply) you cannot do anything - regardless of what you do, about 40-50 % of your customers will be unprofitable. That is just the cost of doing business increase the interest rate "fire" the customer limit the number of free customer-support calls

Answer 1

	Customer A	B
Revenue	400	160
Variable costs	0	0
Contribution Margin	400	160
Allocated costs- Transactions	100	40
Customer Support	320	16
Profit Margin	-20	104
b.Limit the number of free customer support calls
If you get rid
Decrease by $400 in long term