Question

Which of the following factors should be considered when deciding whether to keep a product line or drop it? Check All That Apply a. Opportunity costs of using the production facility currently being used for the product line b. Opportunity costs of using the production facility currently being used for the product line c. Revenues generated by the product line Revenues generated by the product line d. Variable costs incurred in manufacturing the product e. Variable costs incurred in manufacturing the product f. Direct fixed costs associated with the product line g. Direct fixed costs associated with the product line h. Common fixed costs allocated to the product line i. Common fixed costs allocated to the product line j. Research and development costs spent on designing the product line

Answer 1

Answer:

a. Opportunity costs of using the production facility currently being used for the product line

c. Revenues generated by the product line

d. Variable costs incurred in manufacturing the product

f. Direct fixed costs associated with the product line

Explanation:

We should check making the analysis considering the product line as cost object therefore, we should only look at the direct cost of the line and check if it profitable or not at this level.

Then, the line may not be able to generate sufficient profit for their entire indirect cost (allocate fixed cost) but, it bear a portion of them therefore, cutting the line will make the bottom line of the firm worse as these portion will be split into the other lines.

Answer 2

Answer:

The correct answers are the options: A and C.

A: Opportunity costs of using the production facility currently being used for the product line

C: Revenues generated by the product line.  

Explanation:

To begin with, a product line is the name that receives, in the marketing and business field, the concept that refers to a group of products that are related to each other and being sold to the market audience.

To continue, in order to know whether to keep it or to drop it, the company should focus its primary attention in the opportunity costs of using the production facility currently being used for the product line because that cost will show how much the company could be earning if they were using the facility for other product, so that means that this cost is the most important one to understand if there is a product that worth more or not. And the other factor that the organization should care about is the proper revenues that are being made in that product line, if the revenue is a great number then the variable and fixed costs of the product line will not matter.