Managers who utilise customer profitability charts should drop customers that generate a negative customer operating profit,since dropping an unprofitable customer will automatically cause overall income to increase.

Question

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Dropping customers with a negative operating profit does not automatically increase overall income because it fails to consider the fixed costs that are spread across all customers. Eliminating these customers might reduce revenue without significantly impacting overall costs, potentially harming overall profitability.

Managers Who Utilise Customer Profitability Charts Should Drop Customers That