Louise Fairbern operates Interiors by Louise, an interior design consulting and window treatment fabrication business.
Her business is made up of two different distribution channels: a consulting business in which Louise serves two architecture firms (Adams and Betz), and a commercial window treatment business in which Louise designs and constructs window treatments for three commercial clients (Chatham, Dedham and Elm).
Louise wishes 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 relating to the most recent quarter is:
Adams Betz Chatham Dedham Elm
Gross Revenue $234 000 $188 800 $357 380 $147 840 $73 200
Direct Costs 147 000 117 200 218 400 115 720 57 040
The total overhead costs are $340 400. Louise estimates that 25% of her overhead costs relate directly to her architectural business, 40% directly to her window-treatment business, and the remainder are general in nature.
On the revenues above, Louise gave a 10% discount to Adams to lure this customer from a competitor and gave a 5% discount to Elm for advance payment in cash.