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6-38 Client mix decision

6-38 Client mix decision
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MANAGEMENT ACCOUNTING
Management Accounting (Atkinson), 5th Edition
6-38 (Client mix decision) Loren Lee, a financial planner contacts and meets with local individuals to assist with financial planning and investments in Loren’s employer's investment service company. Loren receives no fee for financial planning advice, but in addition to his salary, he receives commissions on client investments in the investment services company. Commission rates vary across different investment products. Loren's employer pays office and phone costs and also reimburses Loren for business-related travel. Satisfied clients have recommended Loren to their friends, and Loren now finds himself with more clients than he can handle in the 40 hours per week he would like to work. To analyze where to most profitably spend his time, Loren has classified his current set of customers into the three groups listed. The hours devoted per customer include direct contact time, travel time, and research and follow-up time for the clients. Loren will introduce clients he is unable to serve to one of his colleagues. A B C Average invest in comp products per month $900 $600 $200 Hours devoted per customer per month 3 1.5 05 Average commission percentage 6% 5% 4% Current number of customers 20 60 120 Clients in group A are generally interested in hearing about new investment products that Loren's company is offering and will usually invest sizable amounts in new products after meeting with Loren or conversing with him on the phone. clients in group B will also invest but generally in smaller amounts than clients in group A. Clients in group C appreciate meeting with Loren because of the excellent advice he provides in planning for retirement and other future expenses but have little discretionary income to invest. Group C clients also generally invest in products with a low commission rate for Loren. However, Loren maintains contact with these clients because he anticipates they will become more profitable as their careers develop. a. Based on the data given, what client mix will maximize Loren's monthly commissions assuming he works 160 hours per month. b. What other factors should Loren consider as he makes his decisions about his client mix?

 

FILE: MS WORD

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