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.What is the amount of profit or (loss)for Customer Z?

Question

Quizplus · Accepted Answer

To find the profit or loss for Customer Z, we need to calculate their total costs first.

Total costs for Customer Z: 
Allocated fixed costs = $1,000,000 x 60% = $600,000 
Direct fixed costs = Income - Profit 
Direct fixed costs for Customer Z = $580,000 - Profit

Now we can set up an equation using the information given:

Total costs = Allocated fixed costs + Direct fixed costs 
$580,000 - Profit = $600,000 + $600,000 x 40% 
$580,000 - Profit = $840,000

Solving for Profit: 
Profit = $580,000 - $840,000 = ($260,000)

Therefore, Customer Z has a loss of $260,000.

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