Question

Discuss the qualitative factors in Keep or Drop Decision in details

Answer 1

The following qualitative factors have to be kept in mind before taking keep or Drop decisions;

1. Customers; What is the impact on customers if the company has dropped the product because the company has to kept in mind that it will not affect the sales of the remaining products .
2. Morale; if the company drops a particular product what impact it has on the morale of the employees. It is general practice that whenever company drops a product then it will bring a bad news of lay - off for its employees as they have uncertainty about their jobs in future.
3. Relevant Cost; some costs are relevant and business has to incur these costs even if the product has been dropped such as depreciation, contractual obligations. These costs has to be incurred even the product has been dropped which in turn increases the cost of the other products because these has now to be borne by them.
4. Common Fixed Costs; Common fixed cost has been borne by the entire product. This fixed cost has to be borne by the entire product even if a particular product line has been dropped which in turn increases the cost of the other products.
5. Brand name of the product; If a particular product line has been dropped then it may be possible that it may have negative impact on the brand name of the product