HW #10 Business Segment Analysis

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 for January follows:

(See attatched picture)

The following requirements refer only to the preceding data. There is no connection between requirements.

1. Should Broadway drop the Kelly Corporations business, assuming that dropping Kelly would decrease Broadways total fixed costs by 20 percent? Show all calculations.

2. Kelly Corporation indicates that it wants Broadway to do an additional $80,000 worth of printing jobs during February. These jobs are identical to the existing business Broadway did for Kelly in January in terms of variable costs and machine hours required. 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 in January. What should Broadway do? What will Broadways operating income be in February? Show your calculations.

3. What, if any, qualitative factors might Broadway also consider in the analysis?

Kelly Taylor Corporation Corporation Total Revenues Variable costs Fixed costs (allocated on the basis of revenues) Total operating cost:s Operating income Machine-hours required $120,000 $ 80,000 $ 200,000 90,000 100,000 190,000 48,000 40,000 88,000 18,000 $ (8,000) S 10,000 42,000 60,000 102,000 $18,000 $ (8,000 $ 10,000 1,500 hours 500 hours 2,000 hours