Question

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

Answer 1

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.