ABC Company licenses proprietary software and provides service agreements to cor

Question

ABC Company licenses proprietary software and provides service agreements to corporate customers. The company has examined product-line information for the company, and they are concerned with sales to smaller firms. The data is ($thousands, 2012):

On further inquiry, they found out that many of the shared expenses were simply allocated evenly between the two types of firms. Because of its apparent non-profitability, they want some advice as to whether to stop serving the small firm market. What would you recommend and why?

Company Big Firms Small Firms Revenue: License $200,000 $150,000 $50,000 Service 435,213 326,410 108,803 Total Revenue 635,213 476,410 158,803 Operating Expenses: Cost of revenues 72,536 58,089 14,507 Research and development 281,081 140,541 140,540 Sales and marketing 150,000 112,500 37,500 Partners Life Insurance Premium 5,900 2,950 2,950 Provision for Bad Debts 32,541 24,406 8,135 Depreciation Expense 107,000 53,500 53,500 Amortization of Start-up Costs 3,250 1,625 1,625 Amortization of Organization Costs 5,750 2,875 2,875 General and administrative 100,000 50,000 50,000 Compensation - John Company Big Firms Small Firms Revenue: License $200,001 $150,001 $50,001 Service 435,214 326,411 -10,388 Total Revenue 635,214 476,411 -20,586 Operating Expenses: -30785.001 Cost of revenues 72,537 58,090 -40,984 Research and development 281,082 140,542 -51,182 Sales and marketing 150,001 112,501 -61,381 Partners Life Insurance Premium 5,901 2,951 -71,579 Provision for Bad Debts 32,542 24,407 -81,778

Explanation / Answer

actuvally the company has two firms big firms and small firms the overal profitability is $ 32,542 and only big firms profitability is 24,407

so in this case the small firms are not stoping it continue is better than its stop

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