Lighthouse Company divides its customers into Premium customers and Standard customers. The company has one full-time customer representative per 100 Premium customers and one full-time customer representative per 1,000 Standard customers. Customer representatives receive salaries plus bonuses of 1 percent of customer gross margin. Lighthouse spends 80 percent of its promotion costs on Premium customers to encourage their loyalty.

Required
a. What is the excess of gross margin over customer costs for each category of customer?
b. Write a short memo that evaluates customerprofitability.

Transcribed Image Text:

Customer Costs Number of customers Average customer representative salary Premium Standard 10,000 8,000 $60,000 $60,000 2,000 Promotion costs . . Average gross margin per customer........ . . . . $1,000,000 $ 1,600 150