10-5

Carmel Company has a frequent buyer program for its customers, where the customers can attain an elite level based on the number of orders and the total revenue of the orders. There are two elite levels: Platinum and Titanium. The benefits of elite membership include discounts and access to special customer service representatives who can resolve problems. The company has one full-time customer representative per 200 Titanium customers and one full-time customer representative per 2,000 Platinum customers. Customer representatives receive salaries plus bonuses of 1 percent of customer gross margin. Lighthouse spends 90 percent of its promotion costs on Titanium customers to encourage their loyalty.

Customer Costs	Total			Titanium			Platinum
Number of customers		24,000			4,000			20,000
Average customer representative salary				$	73,000		$	73,000
Promotion costs	$	1,000,000
Average gross margin per customer				$	1,640		$	350

Required:

a. Calculate the totals of the items below for both titanium and platinum customers, as well as the excess of gross margin over customer costs for each category.

	Titanium	Platinum
Total gross margin
Customer representative salaries & bonuses
Promotion costs
Excess of gross margin over customer cost

b. Which customers are more profitable?

	Platinum
	Titanium