Answered: “If a product line is generating a…

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“If a product line is generating a loss, then it should be discontinued.” Do you agree? Explain.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter14: Real Options

Section: Chapter Questions

Problem 4Q: If a company has an option to abandon a project, would this tend to make the company more or less...

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“If a product is generating a loss, then it should be discontinued.” Do you agree? Explain.
Prentice Company is considering dropping one of its product lines. What costs of the product linewould be relevant to this decision? What costs would be irrelevant?
Which of the following is not an advantageous reason to reduce inventories? a. Inventories provide a competitive advantage. b. Inventories can invite overproduction. c. Inventories are expensive to maintain. d. Inventories may conceal problems. e. All of these are good reasons to reduce inventories.
Which of the following is not a consideration when a manager is deciding to discontinue a product or product line? Whether the product has a positive or negative contribution margin. Determining if direct fixed costs could be avoided if the product or product line is discontinued. If discontinuing the product or product line will affect sales of remaining products. Not having any free capacity.
Which of the following statements is false with respect to replacement analysis? a. Functional obsolescence is the only type of obsolescence that should be considered in a replacement analysis. b. A changing external environment can lead to the need for a replacement analysis. c. Companies frequently use equipment long after a replacement would be economically justified. d. In a replacement analysis, the current asset is referred to as the defender.
Which of the following is a disadvantage of outsourcing? A. freeing up capacity B. freeing up capital C. transferring production and technology risks D. limiting ability to upsize or downsize production
Explain why external failure costs can be more devastating to a firm than internal failure costs.
Does having a positive Contribution Margin always indicate that it is better to continue operations for a certain product producing losses rather than discontinuing that particular product or is this a case to case basis?
What questions should managers answer when considering dropping a product or segment?
Which of the following statements are false? SELECT ALL THAT APPLY a. One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is. b. A new fixed cost that must be paid if a special offer is accepted is not relevant in making the decision. c. A cost that will be incurred regardless of which course of action a manager takes is relevant to the manager's decision. d. Your Company is considering replacing Machine X. The original cost of Machine X is not relevant to this decision.
Please solve this question assuming we can carryback net operating loss.
Which of the following is a disadvantage of outsourcing? Group of answer choices A. freeing up capacity B. freeing up capital C. transferring production and technology risks D. limiting ability to upsize or downsize production