3. [-14 Points) DETAILS MY NOTES ASK YOUR TEACHER PRACTICE ANOTHER 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 20%. Thus, if the credit card balance is $1,000, revenue is $1000*0.2=$200. Variable costs are zero for simplicity. From your ABC system, the activity rates are $0.5 per transaction and $4 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 supports Profit margin Enter negative numbers with a minus sign, le, a loss of $200 should be entered as -200, not as (200) or ($200). 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 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. fire the customer If you get rid of customer A, profit will: decrease by $100 in the long term O remain the same in the long term Increase by $5 in the long term decrease by $5 in the long term