Exhibit 7-5 Accounting Services,Inc.has Two Customers.Customer X Generates $600,000 in Income After

Multiple Choice

Exhibit 7-5
Accounting Services,Inc.has two customers.Customer X generates $600,000 in income after direct fixed costs are deducted,and Customer Z generates $580,000 in income after direct fixed costs are deducted.Allocated fixed costs total $1,000,000 and are assigned 40 percent to Customer X and 60 percent to Customer Z.Total allocated fixed costs remain the same regardless of how these costs are assigned to customers.
-Refer to Exhibit 7-5.Based on this information,which of the following best describes the course of action preferred by management regarding this customer decision?

A) Drop Customer Z because this customer generates a net loss.
B) Drop Customer Z because this customer generates less income after direct fixed costs than Customer X.
C) Keep Customer Z because eliminating this company would have the effect of increasing company profit by $580,000.
D) Keep Customer Z because eliminating this company would have the effect of decreasing company profit by $580,000.
E) None of the answer choices is correct.