ABC Company licenses proprietary software and provides service agreements to corporate customers. The company has examined product-line information for the company, and they are concerned with sales to smaller firms. The data is ($thousands, 2012):

On further inquiry, they found out that many of the shared expenses were simply allocated evenly between the two types of firms.

Because of its apparent non-profitability, they want some advice as to whether to stop serving the small firm market.

Company Big Firm Small Firms Revenue: License Service $150,000 200,000 435,213 635,213 $50.000 Total Revenue 476,410 158,803 Operating Expenses: Cost of revenues Sales and marketing Partners Life Insurance Premium Provision for Bad Debts Depreciation Expense Amortization of Start-up Costs Amortization of Organization Costs General and administrative Compensation -John Compensation - Roman 72,536 281,081 150,000 5,900 32,541 107,000 3,250 5,750 100,000 58,087 140,541 112,500 2,950 24,406 53,500 ,625 2,875 50,000 14,507 40,540 37,500 2,950 8,135 53,500 1,625 2,875 50,000 Total operating expenses 758,057 (122,844) 311,571 152,768 444,486 Operating income 29,924 Other income (Expenses nterest income nterest expense 25,000 4,924 c177,768> 62.219 (172,844) Interest Before income taxes Provision for income taxes Net Income