Question

what are the decisions that are considered for elimination of product line ?

Answer 1

Answer :-

Explanation :-

● 1) If the contribution margin lost by dropping asegment is greater than the fixed costs that can beavoided, then the product line should be retained.

● 2.If the contribution margin lost by dropping asegment is less than the fixed costs that can be avoid-ed, then the product line should be dropped.

● 3. An alternative approachto deciding whether to retain or drop a product line or other segment of a company. In this approach two in-come statements are prepared —one for each alterna-tive.

● 4.The decision to keep or drop a product line or other segment of a company is often clouded by the al-location of common fixed costs, which are costs that would not be avoided, in whole or in part, when a product line is eliminated.