The Montana Consulting is evaluating the profitability of their two clients, X and Y. Total...
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Accounting
The Montana Consulting is evaluating the profitability of their two clients, X and Y. Total fixed costs are allocated evenly between customer X and Y, and will remain the same whether they add or drop clients. Should The Montana Consulting drop client Y? The profit/loss for each customer is shown below. Should client Y be dropped?
XY
Revenue 320,000 154,500
Variable costs 173,000 120,500
Contribution margin 147,000 34,000
Allocated fixed costs 65,000 65,000
Customer profit (loss) 82,000 (31,000)
A. Yes, profit will increase if Client Y is dropped.
B. No, profit will decrease if Client Y is dropped.
C. Yes, because any customer showing a loss should be dropped.
D. Yes, because their revenues are much lower than Client X.
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