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You own a credit card company. You want to evaluate the profitability of two representative customers, A and B. The numbers for customers A and

You own a credit card company. You want to evaluate the profitability of two representative customers, A and B. The numbers for customers A and B are as follows:

customer A customer B
credit card balance $1,000 $400
number of transactions 100 40
number of customer-support calls 40 2

Your revenues and costs for customers are as follows: * Revenues: The only source of revenue is the interest you charge on credit card balances. You charge customers an interest rate of 40% (40% APR). So, if the credit card balance is $100, your revenue is $100*0.4=$40. * Costs: based on the estimates from your ABC system, each transaction costs you $1, and each customer-support call costs you $8. Ignore all other costs. Required: a) compute the revenue you get from each customer, and the costs of serving each customer.

customer A customer B
Revenue $ $
Cost of transactions $ $
Cost of customer-support calls $ $

b) compute the profit margin for each customer. If you get a negative number, enter it with a minus sign, i.e., enter negative $200 as -200 not ($200) profit margin for A = $ profit margin for B = $ c) if you solved (a) and (b) correctly, one of the customers should be unprofitable. What should you do about this customer?

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