Product Deletion (W. Crum.)

NOX POX ROX Sales 5,000 at $20 12,000 at $12 16,000 at $10 Variable costs $12 each $6 each $4 each Fixed costs $50,000 $40,000 $50,000 These products are made in competition with each other; the company believes that by an advertising outlay of $20,000 it could get 80 percent of the users of Nox to buy Pox or Rox, thus permitting the firm to drop the Nox line, owing to its unprofitability. Analysis reveals $20,000 of the Nox fixed cost is separable and would stop with the dropping of that line. Assume continuing fixed costs of Nox will be divided 3/4 to Pox and 1/4 to Rox.
Would you advise the company to do this if a market survey concluded sales of Pox would go up by 3,000 with the remainder of the Nox Customers turning to Rox (those that would not go to competitors)? Show figures in support of your answer. lop5