customer decision and qualitative factors the following customer segmented monthly i 1571360

Customer Decision and Qualitative Factors. The following customer segmented monthly income statement is for Quality Web, Inc., a firm that provides Web site maintenance services.

Management is concerned about the losses associated with the Murray account and would like to drop this customer. Allocated fixed costs are assigned to customers based on sales revenue. If Murray is dropped, total allocated fixed costs are assigned to the remaining customers, and all variable and direct fixed costs for the Murray account will be eliminated.

Required:

a. Perform differential analysis using the format presented in . Assume keeping all customers is Alternative 1, and dropping the Murray account is Alternative 2.

b. Which alternative is best? Explain.

c. Summarize the result of dropping the Murray account using the format presented in .

d. Explain what happened to the profitability of the other two customers as a result of dropping the Murray account.

e. Assume all the facts of this problem remain the same with one exception. As a result of dropping the Murray account, Quality Web, Inc., is able to reduce total allocatedfixed costs by 20 percent. The remaining 80 percent will be allocated to the other two products based on sales revenue. Does this change Quality Web’s decision as to whether to drop the Murray customer? Explain. (Hint: Add one line item in the requirement c analysis to reflect allocated fixed cost savings.)

f. Identify at least one qualitative factor that should be considered before deciding whether to drop the Murray account.