Question 3: Evaluating customer profitability You own a credit card company. You want to evaluate the profitability of customers A and B. customer A customer B credit card balance $1,500 $600 number of transactions 150 60 number of customer-support calls 60 The only source of revenue from customers is the interest that you charge on credit card balances. You charge customers an interest rate of 40%. Thus, if the credit card balance is $1,000, revenue is $1000*0.4=$400. Variable costs are zero for simplicity. From your ABC system, the activity rates are $1 per transaction and $8 per customer-support call. a) Compute revenue, costs, and profit margin for each customer. customer A customer B Revenue Variable costs Contribution margin Allocated costs - transactions Allocated costs - customer support $ Profit margin Enter negative numbers with a minus sign, i.e., a loss of $200 should be entered as -200, not as (200) or ($200). b) One of the customers is unprofitable. What can you do about this customer? (select all that apply) limit the number of free customer support calls increase the interest rate "Fire" the customer you cannot do anything -- regardless of what you do, about 40-50% of your customers will be unprofitable. That is just the cost of doing business. If you get rid of customer A, profit will: decrease by $30 in the long term remain the same in the long term decrease by $600 in the long term increase by $30 in the long term