Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A company has the following data. Annual fee = 50/customer Avg spending per customer = 500/month 1% commission earned on customer spending Annual maintenance cost

A company has the following data.

Annual fee = 50/customer

Avg spending per customer = 500/month

1% commission earned on customer spending

Annual maintenance cost = 250M/year

variable cost = $5/year/customer

total users = 2Million

a) what is the company's current profit?

b) Suppose that the company wants to differentiate between heavy users and regular users. Here are the new data for heavy users, the regular users have the same data as part a. Assuming that total users are 2 million. How many heavy users and how many regular users ensure a break-even profit? (use the data below)

annual fee = $65

avg spending = $625/month

2% commission

variable cost = $15/year

additional admin cost = 1.25/month

c) Suppose that there is an issue with the database. All heavy users must register in the database to be considered for 2% commission, or else it would be 1% commission. However, failing to register will eliminate the 1.25 admin cost/month. The database has been shut off since January to March, all heavy users that are registered but did not cancel their account have not been removed, and no new users are registered. If every month there are 400 users canceled, 2000 new users every month, what is the total cost/benefit generated from this database shutoff incident?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

a To calculate the companys current profit we need to consider the revenue and costs involved Revenue Annual fee per customer 50 Total users 2 million Annual fee revenue 50 2000000 100000000 Commissio... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting Tools for business decision making

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

6th Edition

978-0470477144, 1118096894, 9781118214657, 470477148, 111821465X, 978-1118096895

More Books

Students also viewed these Finance questions

Question

Explain the process of communication.

Answered: 1 week ago

Question

=+b) What is the standard deviation?

Answered: 1 week ago