Customer profitability, choosing customers. Broadway Printers operates a printing press

.''' with a monthly capacity of 2,000 machine-hours. Broadway has two main customers, Taylor Corporation and Kelly Corporation. Data on each customer forJanuary follow:

Taylor Corporation Kelly Corporation Total Revenues $132,000 $88,000 $220,000 Variable costs 46,200 52,800 99,000 Fixed costs (allocated on the basis ofrevenues) 66,000 44,000 110,000 Total operating costs 112,200 96,800 209,000 Operating income $ 19,800 $(8,800) $ 11,000 Machine-hours required 1,500 hours 500 hours 2,000 hours Each of the following requirements refers only to the preceding data; there is no connection between the requirements.

Required 1. $hould Broadway drop the Kelly Corporation business? If Broadway drops the Kelly Corporation business, its total fixed costs will decrease by 20%.

2. Kelly Corporation indicates that it wants Broadway to do an additional $88,000 worth ofprint¬

ing jobs during February. These jobs are identical to the existing business Broadway did for Kelly inJanuary in terms ofvariable costs and machine-hours required. Broadway anticipates that the business from Taylor Corporation in February will be the same as that in January.

Broadway can choose to accept as much of the Taylor and Kelly business for February as it wants. Assume that total fixed costs for February will be the same as the fixed costs inJanuary.

Whatshould Broadway do? What will Broadway’s operating income be in February?