Question 3: Evaluating customer profitability. You own a credit card company. You want to evaluate the profitability of customers A and B. customer Acustomer B credit card balance $500 $200 number of transactions 50 20 number of customer-support calls 20 1 The only source of revenue from customers is the interest that you charge on credit card balances. You charge customers an interest rate of 30%. Thus, if the credit card balance is $1,000, revenue is $1000*0.3=$300. Variable costs are zero for simplicity. From your ABC system, the activity rates are $0.75 per transaction and $6 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 $ $ A 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). TA 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 "fire" the customer increase the interest rate 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: number of transactions 50 20 number of customer-support calls 20 1 The only source of revenue from customers is the interest that you charge on credit card balances. You charge customers an interest rate of 30%. Thus, if the credit card balance is $1,000, revenue is $1000*0.3=$300. Variable costs are zero for simplicity. From your ABC system, the activity rates are $0.75 per transaction and $6 per customer-support call. a) Compute revenue, costs, and profit margin for each customer. customer A customer B Revenue $ $ Variable costs Contribution margin A 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). A 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 "fire" the customer increase the interest rate 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: remain the same in the long term decrease by $7.5 in the long term increase by $7.5 in the long term decrease by $150 in the long term
