Computer Support, Inc. has two customers; Rosen and Hernandez. Rosen generates $300,000 in income after direct fixed costs are deducted, and Hernandez generates $290,000 in income after direct fixed costs are deducted. Allocated fixed costs total $510,000 and are assigned 40 percent to Rosen and 60 percent to Hernandez. Total allocated fixed costs remain the same regardless of how these costs are assigned to customers.

Which of the following is the course of action preferred by management regarding Hernandez?

Keep Hernandez because eliminating this customer would have the effect of increasing company profit by $290,000.

Drop Hernandez because this customer generates less income after direct fixed costs than Rosen.

Drop Hernandez because this customer generates a net loss. Drop Hernandez because this customer generates a net loss.

Keep Hernandez because eliminating this customer would have the effect of decreasing company profit by $290,000.