Using the table below, which is the most profitable customer segment? What is your overall assessment...

Using the table below, which is the most profitable customer segment? What is your overall assessment of this customer mix? Show your work.

	High Volume/Low Margin (HV/LM)	Low Volume/Low Margin (LV/LM)	Low Volume/High Margin (LV/HM)	High Volume/High Margin (HV/HM)
Annual Revenues	15,000,000	900,000	800,000	2,000,000
Variable Costs	12,400,000	650,000	370,000	1,000,000
Contribution Margin	2,600,000	250,000	430,000	1,000,000

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Expert Solution

Profitable customer segment is low volume/ high margin because its has the highest contribution margin( calculation shown in table)

Overall assessment mentioned in remarks -

Particulars	HV/LM	LV/LM	LV/HM	HV/HM

Annual Revenues	15000000	900000	800000	2000000
Variable cost	12400000	650000	370000	1000000
% of variable cost to annual revenue	82.67%	72.22%	46.25%	50.00%
Contribution	2600000	250000	430000	1000000
% of contri to annual Revenue	17.33%	27.78%	53.75%	50.00%

Remarks	VC is too high resulting in low contribution margin despite high volume segment, therefore it is least contributing segment	VC cost is high, low revenue and low contribution margin / not very profitable segment	Highest contributing segment, Lowest varible cost. This segment shows growth	Contribution margin is good but VC cost is high.

jeff jeffy answered 2 years ago

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