Question

1) Snacking Macs, Inc., currently manufactures three different types of scientifically balanced dog food. The firm is considering eliminating one of the three products. What factors should be taken into account in making this decision?

Answer 1

In taking decision for elimination of product line both quantitative factors and qualitative factors should be considered by the firm

Quantitative factors:

The contribution of the product line should be compared with avoidable fixed cost. If Contribution is higher than avoidable fixed cost the product should not be discontinued since the contribution helps in recovering fixed overheads. If avoidable fixed cost savings is higher than contribution of the product line the product line should be discontinued immediately since there is savings. Contribution is calculating by sales –variable cost. Avoidable fixed are the cost which are avoided by discontinuing product line for example: Cost incurred in advertising the product and other fixed costs which are directly associated with product line.

Qualitative factors:

A firm should also consider qualitative factors in eliminating product line. Below are some of the listed qualitative factors

· Impact on brand image of the firm

· Impact on the morale of the employees

· Customer perception

· Impact on other product sales