Acme Shirts Limited has produced the following analysis of its product range:

Shirt range Formal Sports Casual Total

£000 £000 £000 £000 Revenue (A) 340 200 300 840 Direct materials 60 50 70 180 Direct labour 40 50 48 138 Variable overheads 80 60 40 180 Other factory costs (apportioned) 60 70 68 198 Total factory cost (B) (240) (230) (226) (696)

Gross profit/(loss) (A) - (B) 100 (30) 74 144 Non-production overheads (assume all fixed) (80)

Operating profit 64 The managing director has reviewed the information and believes that the Sports shirt range should be discontinued since it appears to be making a loss. Do you agree with this course of action, and what would be its effect if implemented?