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32. Customer Decision. The following customer segmented annual income statement is for Owens Accounting Services, Inc.: 32. Customers Cherry Corp Orange Inc Apple LLP Sales Revenue $1,500,000 $1,500,000 $750,000 Total $3,750,000 Variable Costs 1,200,000 1,110,000 540,000 2,850,000 Contribution Margin $300,000 $390,000 $210,000 $900,000 Direct Fixed Costs 90,000 120,000 195,000 405,000 Allocated Fixed Costs 120,000 120,000 60,000 300,000 Profit (Loss) $90,000 $150,000 $(45,000) $195,000 Management is concerned about the losses associated with the Apple LLP account and would like to drop this customer. Allocated fixed costs are assigned to customers based on sales revenue. If Apple LLP is dropped, total allocated fixed costs are assigned to the remaining customers, and all variable and direct fixed costs for the Apple LLP account will be eliminated. Required: a. Perform differential analysis using the format presented in Table 7.12, Table 7.13, and Table 7.14. Assume keeping all customers is Alternative 1, and dropping the Apple LLP account is Alternative 2. b. Which alternative is best? Explain. c. Summarize the result of dropping the Apple LLP account using the format presented in Table 7.15. Customer Decision (continued) c. Amounts shown in parentheses indicate a negative impact on profit, and amounts without parentheses indicate a positive impact on profit: Result of Dropping Apple LLP Account Sales revenue lost ($750,000) Dollar Description Amount Correct Correct Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect

32. Customer Decision. The following customer segmented annual income statement is for Owens Accounting Services, Inc.: 32. Customers Cherry Corp Orange Inc Apple LLP Sales Revenue $1,500,000 $1,500,000 $750,000 Total $3,750,000 Variable Costs 1,200,000 1,110,000 540,000 2,850,000 Contribution Margin $300,000 $390,000 $210,000 $900,000 Direct Fixed Costs 90,000 120,000 195,000 405,000 Allocated Fixed Costs 120,000 120,000 60,000 300,000 Profit (Loss) $90,000 $150,000 $(45,000) $195,000 Management is concerned about the losses associated with the Apple LLP account and would like to drop this customer. Allocated fixed costs are assigned to customers based on sales revenue. If Apple LLP is dropped, total allocated fixed costs are assigned to the remaining customers, and all variable and direct fixed costs for the Apple LLP account will be eliminated. Required: a. Perform differential analysis using the format presented in Table 7.12, Table 7.13, and Table 7.14. Assume keeping all customers is Alternative 1, and dropping the Apple LLP account is Alternative 2. b. Which alternative is best? Explain. c. Summarize the result of dropping the Apple LLP account using the format presented in Table 7.15. Customer Decision (continued) c. Amounts shown in parentheses indicate a negative impact on profit, and amounts without parentheses indicate a positive impact on profit: Result of Dropping Apple LLP Account Sales revenue lost ($750,000) Dollar Description Amount Correct Correct Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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32. Customer Decision. The following customer segmented annual income statement is for Owens Accounting Services, Inc.: 32. Customers Cherry Corp Orange Inc Apple LLP Sales Revenue $1,500,000 $1,500,000 $750,000 Total $3,750,000 Variable Costs 1,200,000 1,110,000 540,000 2,850,000 Contribution Margin $300,000 $390,000 $210,000 $900,000 Direct Fixed Costs 90,000 120,000 195,000 405,000 Allocated Fixed Costs 120,000 120,000 60,000 300,000 Profit (Loss) $90,000 $150,000 $(45,000) $195,000 Management is concerned about the losses associated with the Apple LLP account and would like to drop this customer. Allocated fixed costs are assigned to customers based on sales revenue. If Apple LLP is dropped, total allocated fixed costs are assigned to the remaining customers, and all variable and direct fixed costs for the Apple LLP account will be eliminated. Required: a. Perform differential analysis using the format presented in Table 7.12, Table 7.13, and Table 7.14. Assume keeping all customers is Alternative 1, and dropping the Apple LLP account is Alternative 2. b. Which alternative is best? Explain. c. Summarize the result of dropping the Apple LLP account using the format presented in Table 7.15. Customer Decision (continued) c. Amounts shown in parentheses indicate a negative impact on profit, and amounts without parentheses indicate a positive impact on profit: Result of Dropping Apple LLP Account Sales revenue lost ($750,000) Dollar Description Amount Correct Correct Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect
Transcribed Image Text:32. Customer Decision. The following customer segmented annual income statement is for Owens Accounting Services, Inc.: 32. Customers Cherry Corp Orange Inc Apple LLP Sales Revenue $1,500,000 $1,500,000 $750,000 Total $3,750,000 Variable Costs 1,200,000 1,110,000 540,000 2,850,000 Contribution Margin $300,000 $390,000 $210,000 $900,000 Direct Fixed Costs 90,000 120,000 195,000 405,000 Allocated Fixed Costs 120,000 120,000 60,000 300,000 Profit (Loss) $90,000 $150,000 $(45,000) $195,000 Management is concerned about the losses associated with the Apple LLP account and would like to drop this customer. Allocated fixed costs are assigned to customers based on sales revenue. If Apple LLP is dropped, total allocated fixed costs are assigned to the remaining customers, and all variable and direct fixed costs for the Apple LLP account will be eliminated. Required: a. Perform differential analysis using the format presented in Table 7.12, Table 7.13, and Table 7.14. Assume keeping all customers is Alternative 1, and dropping the Apple LLP account is Alternative 2. b. Which alternative is best? Explain. c. Summarize the result of dropping the Apple LLP account using the format presented in Table 7.15. Customer Decision (continued) c. Amounts shown in parentheses indicate a negative impact on profit, and amounts without parentheses indicate a positive impact on profit: Result of Dropping Apple LLP Account Sales revenue lost ($750,000) Dollar Description Amount Correct Correct Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect
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