A.Hickman Manufacturing purchased a piece of equipment costing $15,000 to produce light-up sneakers for adults. The product is not selling, and the firm is losing money on the adult light-up sneakers. If the company stops producing the adult light-up sneakers, the equipment can be sold for $5,000. In addition, the factory is currently at capacity, so if the company stops producing the adult light-up sneakers, it could produce more of its trail-running sneakers, which would result in $7,000 of additional income. Pretend you are the CEO of Hickman Manufacturing.

What type of cost is the $15,000 cost of the equipment?

i.Should this impact your decision to stop producing the adult light-up sneakers?

What type of cost is the $5,000 salvage value of the equipment?

i.Should this impact your decision to stop producing the adult light-up sneakers?

What type of cost is the $7,000 potential additional income from the trail-running sneakers?

i.Should this impact your decision to stop producing the adult light-up sneakers?

Now pretend that Hickman Manufacturing actually has excess capacity.

i.How would this impact your consideration of the $7,000 additional income from producing more trail-running sneakers?

ii.Would it change your decision regarding whether to stop producing the adult light-up sneakers?

________ Yes, , it would change my decision ________ No, it would not change my decision

Now pretend that your accountant points out that the adult light-up sneakers actually have a positive segment margin, and that it is the subtraction of common fixed costs that result in a negative income number for the adult light-up sneakers. Considering this, should you keep or stop producing the adult light-up sneakers?

_______ Keep producing the adult light-up sneakers ________ Drop the adult light-up sneakers