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 channels and the business as a whole. Information about her most recent quarter follows:

Gross revenue from Attractive Abodes (AA) ........ $ 117,000

Gross revenue from Better Buildings (BB) .........94,400

Gross revenue from Cheery Curtains (CC) ......... 178,690

Gross revenue from Delightful Drapes (DD) .........73,920

Gross revenue from Elegant Extras (EE) .........36,600

Costs specific to AA .................73,500

Costs specific to BB .................58,600

Costs specific to CC ................. 109,290

Costs specific to DD .................57,860

Costs specific to EE ..................28,520

Overhead costsa ................... 170,200

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 are general in nature.

On the revenues indicated above, 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.

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

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