80.2K

Verified Solution

Link Copied!

You own a credit card company. You want to evaluate the profitability of customers A and B. customer A customer B credit card balance S500 $200 number of transactions 50 20 number of customer-support calls20 The only source of revenue from customers is the interest that you charge on credit card balances. You charge customers an interest rate of 10%. Thus, if the credit card balance is s 1,000, revenue is s 1000"0.1-5100. Variable costs are zero for simplicity. From your ABC system, te activity rates are $0.25 per transaction and $2 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 shouid be entered as -200, not as (200) or (S200) 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 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. "fire" the customer Increase the interest rate If you get rid of customer A, profit will O decrease by $50 in the long term increase by $2.5 in the long term decrease by $2.5 in the long term O remain the same in the long term

Answer & Explanation Solved by verified expert

See Answer