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 | 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 customer profitability.

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Customer Costs Total Premium Standard Number of customers. 10,000 Average customer representative salary 2,000 $60,000 8,000 $60,000 Promotion costs $1,000,000 Average gross margin per customer $ 1,000 $ 200