Question 4:

Brothers company supplies furniture to three local retailers, Darry, Scott, and Slicer Inc. The following exhibit presents representative revenues and costs of Brothers by customers for the year 2020. Additional information on Brothers costs for different activities at various levels of the cost hierarchy is as follows:

	Darry	Scott	Slicer	Total
Sales	$550,000	$330,000	$440,000	$1,320,000
Cost of goods sold	380,000	220,000	340,000	$940,000
Materials-handling labour	41,000	18,000	33,000	$92,000
Materials-handling equipment (Cost written off as amortization)	10,000	6,000	8,000	$24,000
Rent	14,000	8,000	14,000	$36,000
Marketing support	11,000	9,000	10,000	$30,000
Purchase orders and delivery processing	13,000	7,000	12,000	$32,000
General administration	20,000	12,000	16,000	$48,000
Total operating costs	489,000	280,000	433,000	$1,202,000
Operating income	$61,000	$50,000	$7,000	$118,000

1. Materials-handing labor costs vary with the number of units of furniture shipped to customers.
2. Different areas of the warehouse stock furniture for different customers. Materials-handling equipment in an area and amortization costs on the equipment are identified with individual customer accounts. Any equipment not used remains idle. The equipment has a one-year useful life and zero disposal price.
3. Brothers allocates rent to each customer account on the basis of the amount of warehouse space occupied by the products to be shipped to that customer.
4. Marketing costs vary with the number of sales visits made to customers.
5. Purchase order costs vary with the number of purchase orders received; delivery processing costs vary with the number of shipments made.
6. Brothers allocates fixed general administration costs to customers on the basis of dollar sales made to each customer.

Required:

1. What are the relevant costs and relevant revenues when Brothers company considers dropping the Slicer Inc. as a customer because of COVID-19?
2. Please calculate the operating income(loss) if Brothers drop Slicer Inc. as a custom.
3. Should Brothers keep Slicer as a customer or just drop it? Why?