10-65 (Algo) Customer Profitability (LO 10-4) Kresge Lodging has an elite program for its card members. There are three levels, based on total nights stayed: Diamond (50 nights or more); Platinum (25 nights or more); and Base (fewer than 25 nights). In order to facilitate reservations and answer customer questions, Kresge Lodging provides access to special customer service representatives, who work exclusively with the designated level (Diamond, and so on). Customer representatives receive salaries plus bonuses of 5 percent of customer gross margin. The company provides various perquisites (free nights, upgrades, and so on) to its members, with 75 percent of the cost of the perquisites used for the benefit of Diamond members, 20 percent for Platinum members, and 5 percent for Base members. Customer Costs Number of members Average customer representative salary Number of representatives Perquisite costs Average annual gross margin per customer Total 171,500 28 Diamond 24,000 $ 85,000 15 Platinum 61,500 $ 56,000 8 $ 7,880,000 $ 400 $1,200 Base 86,000 $ 44,000 The gross margin received by Kresge is the amount received from the participating hotels for a customer's stay. 5 $ 200 Required: a. What is the excess of gross margin over customer costs for each category of customer? b. Which customers are more profitable? Complete this question by entering your answers in the tabs below. Required A Required B What is the excess of gross margin over customer costs for each category of customer? Total gross margin Customer representative salaries Customer representative bonuses Perquisite costs Net profit Diamond Platinum Required A Required B > Base