Question

Discuss the qualitative factors in Keep or Drop Decision in details.

please, no repeated answers that have been already given on this wibesite.

Answer 1

Qualitative factors would need to be considered before a decision on whether to keep or drop aproduct is adopted:-

1)Morale:in this case we should consider this factor, the impact on employee morale whetherto drop this product line.

2)Customers: The impact on customer opinions of a business if we drop this product line.Before discontinuing a product, the company has to make sure that sales of remaining products would not be adversely affect.For example: in this case, we should consider this factor if we have many customer who buytiles at the same time they buy block or brick. So this is very important to consider if youdon’t want to impact the revenue of blocks or bricks.

3)Brand name of Products: It may be possible to use somewhat cheaper material in products.However, if this is done too much, it may create an overall impression of reduced quality,which may lead customers to buy fewer products.

4)Relevant cost: we have 2 types of cost that we should consider before keeping or dropping aproduct line: direct fixed cost and common fixed cost.

• Direct fixed costs are fixed costs that can be directly traced to the product. Justbecause a fixed cost is direct does not mean that it is avoidable. There may bedepreciation, contractual obligations, and other costs that the company will not beable to cut even if the product is discontinued. If the fixed costs cannot be avoided,losses will increase if the product is discontinued because the product will no longerbe contributing to the total contribution margin.
• Common fixed costs are organization sustaining fixed costs that are allocated to theproduct. These fixed costs will continue even if the product has been eliminated; they will just be allocated to the remaining products.

And one more cost that we should consider that is a future cost that differs across alternatives. They are frequently variable costs – called flexible resources. Costs that can beeliminated (in whole or in part) by choosing one alternative over the another are avoidable costs. Avoidable costs are relevant costs.