Customer-cost hierarchy, customer profitability. Denise Nelson operates Interiors by Denise, an interior design consulting and window treatment fabrication business. Her business is made up of two different distribution channels, a consulting business in which Denise serves two architecture firms (Attractive Abodes and Better Buildings), and a commercial window treatment business in which Denise designs and constructs window treatments for three commercial clients (Cheery Curtains, Delightful Drapes, and Elegant Extras). Denise would like to evaluate the profitability of her two architecture firm clients and three commercial window treatment clients, as well as evaluate the profitability of each of the two divisions, and the business as a whole. Information about her most recent quarter follow:

Gross revenue from Attractive Abodes (AA)........$58,500

Gross revenue from Better Buildings (BB)..........47,200

Gross revenue from Cheery Curtains (CC)...........89,345

Gross revenue from Delightful Drapes (DD)..........36,960

Gross revenue from Elegant Extras (EE)..........18,300

Costs specific to AA..................36,750

Costs specific to BB..................29,300

Costs specific to CC..................54,645

Costs specific to DD..................28,930

Costs specific to EE..................14,260

Overhead costsa.....................85,100

aDenise has determined that 25% of her overhead costs relate directly to her architectural business, 40% relate directly to her window treatment business, and the remainder is general in nature. Denise gave a 10% discount to Attractive Abodes in order to lure it away from a competitor, and gave a 5% discount to Elegant Extras for advance payment in cash.

Required

1. Prepare a customer-cost hierarchy report for Interiors by Denise, using the format in Exhibit 14-6.

2. Prepare a customer-profitability analysis for the five customers, using the format in Exhibit 14-7.

3. Comment on the results of the preceding reports. What recommendations would you give Denise?