Accounting Services, Inc. has two customers. Customer X generates $600,000 in income after direct fixed costs are deducted, and Customer Z generates $580,000 in income after direct fixed costs are deducted. Allocated fixed costs total $1,000,000 and are assigned 40 percent to Customer X and 60 percent to Customer Z. Total allocated fixed costs remain the same regardless of how these costs are assigned to customers. Based on this information, which of the following best describes the course of action preferred by management regarding this customer decision?

A.Drop Customer Z because this customer generates a net loss.

B.Drop Customer Z because this customer generates less income after direct fixed costs than Customer X.

C.Keep Customer Z because eliminating this company would have the effect of increasing com-pany profit by $580,000.

D.Keep Customer Z because eliminating this company would have the effect of decreasing company profit by $580,000.

E.None of the answer choices is correct.

Lanyard Company is considering an investment that will generate $600,000 in cash inflows per year for 7 years and has $240,000 of cash outflows for the same period (before income taxes). The cost of the asset is $700,000 and it will be depreciated using straight-line depreciation over the 7 year life. The asset has no salvage value. Lanyards tax rate is 40%. The cost of capital is 18%. What is the annual after-tax cash flow associated with this investment?

A.$176,000
B.$260,000
C.$216,000
D.$256,000
E.None of the answer choices is correct.

All managers require one standard format for differential analysis.

A.True
B.False