QUESTION 12

1. The Montana Consulting is evaluating the profitability of their two clients, X and Y. Total fixed costs are allocated evenly between customer X and Y, and will remain the same whether they add or drop clients. Should The Montana Consulting drop client Y? The profit/loss for each customer is shown below. Should client Y be dropped?

   	X	Y
   Revenue	$410,000	$230,000
   Variable costs	$184,500	$163,500
   Contribution margin	$225,500	$66,500
   Allocated fixed costs	$80,000	$80,000
   Customer profit (loss)	$145,500	($13,500)

   		Yes, profit will increase if Client Y is dropped.
   		Yes, because their revenues are much lower than Client X .
   		Yes, because any customer showing a loss should be dropped.
   		No, profit will decrease if Client Y is dropped.