Question

Why might the elimination of an apparent unprofitable product or location not increase profitability?

Answer 1

Ans: The elimination of an apparent unprofitable product or location not increase profitability because of teh unavoidable fixed expenses which will continue to incure irresprct of the unit is closed or not. And if the amount of this expenses is less than the contribution(i.e sales- variable cost) then closing would not meant that the copany will be profitable instead it would be at loss. It could be best explained as per below shown example:
Note : As shown in above example closing loss making unit, resulted in more loss.