Question

Imagine you’re the CFO of a company with 10 product lines and an infrastructure that includes several functional departments which support some or all of these product lines. The CEO is curious as to what effect dropping one of the product lines or increasing investment in certain product lines might have on company profits.

Based specifically on what we’ve been reading about in recent weeks, what information should the CFO be gathering and key metrics calculated to help the CEO make such decisions? What are “fixed” expenses, are they truly “fixed” and how should they be considered when making such decisions?

Answer 1

Answer:-

• Since the CFO of the organization is interested to know the impacts a business proposition to drop a product offering or to put resources into new product offering will have on organization's benefit.
• So it will require the CFO to assemble such data which will examine the impacts it will have on organizations gain fullness, liquidity and also on companies working capital administration framework additionally, as:

On the off chance that need to put resources into new product offering

1. Industry investigation of the item which the organization need to put resources into.
2. The gain fullness of the new product offering
3. Capital planning need to back such product offering.

On the off chance that need to drop a current product offering

1. Cost-volume-benefit examination to comprehend whether the specific product offering is beneficial or not.
2. What all are the applicable cost which can be dodged.
3. Amount of sunk expense and the settled cost which keep on being brought about even subsequent to dropping off that specific product offering.
4. The opportunity cost of utilizing the assets in an other product offering.

• The CFO needs to consider the settled costs which are joined to that specific product offering which will be brought about independent of level of creation action, and whether all the sum in settled cost comprise of settled consumption just or it is a semi-variable cost which implies it's a mix of variable expense and settled expense up to certain applicable range which can't be stayed away from.