Complete the exercise on Chapter 6
Exercise on Chapter 6
6-8 “If a product is generating a loss, then it should be discontinued.” Do you agree? Explain using one example.
To some extent, the decision to terminate a loss-making product will rely on various factors like the need for market penetration and the creation for a loss lender. It is essential to assess the effects of the discontinuation on the company. For example, for a long time, inkjet printers have been sold at cost or a loss to attract buyers who have to purchase the manufacturer’s expensive ink cartridges, generating high profits.
Additionally, Revenues and expenditures associated with reaching that level of income should be carefully assessed before the decision is made to stop producing a product. The fixed expenses have no bearing on this form of decision-making. A company will still have to pay fixed costs even if it discontinues its loss-making product. The variable expenses, notably preventable and unavoidable expenditures, should be taken into account the most when doing so.
Product discontinuation should only be done if the unavoidable costs outweigh the losses caused by the product. Alternatively, if the unavoidable costs are lower than the loss caused, the product should be discontinued…………
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