Question

Assume that you work for Greeble's Department Store, and your manager wants to discuss the pros and cons of discontinuing its hardware department. That department appears to be generating losses, and your manager believes that discontinuing it will increase overall store profits.

Question:

What factors should Greeble's management consider when trying to decide whether to discontinue its hardware department?

Answer 1

Starting or closing a business or a unit of the business is not an easy task as this require a lot of consideration.

Not only because the business is not been running good from sometime does some time not means that it should be closed.

Below are some of the factors that must be considered before closing a business.

1. Considering the fixed cost also, this is important to include the fixed cost because even if a business has been closed the fixed cost will be there.
2. Opportunity cost, this is also important because if one business has been closed this means that in what other business we can invest.
3. Rate of return, comparison between the desired rate of return and the actual rate of return should be made.
4. Feedback from customer, before closing the unit this is important to know that what the customers think about the product that we make. If the feedback is positive than the ways to cope up in revenue should be made.