Broadway Printers operates a printing press with a monthly capacity
Broadway Printers operates a printing press with a monthly capacity of 2,000 machine hours (MH). Broadway has two main customers, Taylor Corporation and Kelly Corporation. Data on each customer for January follow:
Each of the following requirements refers only to the preceding data; there is no connection between the requirements.
1. Fixed costs arise because equipment and other capacity have been purchased. What would the allocation of fixed costs and what would be the operating income and operating margin for each job if the fixed MOH cost allocation base were machine hours instead of revenue?
2. Should Broadway drop the Kelly Corporation business? If Broadway drops the Kelly Corporation business, its total fixed costs will decrease by 20%.
3. Kelly Corporation indicates that it wants Broadway to do an additional $88,000 worth of printing jobs during February. These jobs are identical to the existing business Broadway did for Kelly in January in terms of variable costs and machine hours required. Broadway anticipates that the business from Taylor Corporation in February will be the same as that in January. Broadway can choose to accept as much of the Taylor and Kelly business for February as it wants. Assume that total fixed costs for February will be the same as the fixed costs in January. What should Broadway do? What will Broadway’s operating income be in February?
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