Question 5: Quebec Inc. supplies furniture to three local retailers, Budget, Stephanie, and Quality Inc. The following exhibit presents representative revenues and costs of Quebec inc. by customers for the year 2019. Additional information on Quebec inc.'s costs for different activities at various levels of the cost hierarchy is as follows: Mogul Penner Slicer Total Sales 5770.000 $690.00 50.000 52,030,000 Cost of goods sold 560,000 $30,000 480,000 $1.520.000 Materials handling labour 41.000 1.000 33.000 $92000 Materials.handling equipment (Cost written off as amortization) 10,000 6,000 8.000 $24.000 Rent 18.000 12.000 7.000 $37.000 Marketing support 11,000 9000 10,000 $30,000 Purchase orders and delivery processing 13,000 7,000 $32.000 General administration 20,000 12.000 16,000 Sek 000 Total operating costs 673.000 594,000 566.000 S1.833.000 Operating income 597.000 596,000 516,000 $177.000 1. Materials-handing labour 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. Quebec Inc. 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. Quebec allocates fixed general administration costs to customers on the basis of dollar sales made to each customer Required: Operating income $97.000 596,000 $16,000 $177.000 1. Materials-handing labour 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. Quebec Inc. 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. Quebec 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 Quebec Inc considers dropping the Quality Inc. as a custom because of COVID-19? 2. Please calculate the operating income(loss) if Quebec drop Quality Inc. as a custom. 3. Should Quebec inc. keep Quality Inc. as a customer or just drop it? Why
