Pantier Inc. is considering dropping one of its product lines, the BH4, due to losses experienced...

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Pantier Inc. is considering dropping one of its product lines, the BH4, due to losses experienced over the past quarter. To help with this decision, the company's cost accountant has gathered the following information: Sales (for 1,000 units) Manufacturing costs: Direct materials Direct labour Overhead support Operating income (loss) $900,000 504,000 108,000 360,000 -$72,000.00 Overhead support costs are 85% variable. The remining 15% is depreciation of special equipment used in production of the BH4 that does not have any resale value. Required (A) Based on financial considerations alone, should the company drop the product line? By how much would income increase or decrease by dropping the product line? (B) What other factors should a company consider before deciding whether to drop a product line? Pantier Inc. is considering dropping one of its product lines, the BH4, due to losses experienced over the past quarter. To help with this decision, the company's cost accountant has gathered the following information: Sales (for 1,000 units) Manufacturing costs: Direct materials Direct labour Overhead support Operating income (loss) $900,000 504,000 108,000 360,000 -$72,000.00 Overhead support costs are 85% variable. The remining 15% is depreciation of special equipment used in production of the BH4 that does not have any resale value. Required (A) Based on financial considerations alone, should the company drop the product line? By how much would income increase or decrease by dropping the product line? (B) What other factors should a company consider before deciding whether to drop a product line?

Answer rating: 100% (QA)

Answer 1 To calculate the incremental free cash flow associated with the new machine at t 0 we need ... View the full answer