Question
Consider the following scenarios for Decision Making: 1. Sparks Ltd produces three products: A, B and C. The following is an estimate of costs
Consider the following scenarios for Decision Making: 1. Sparks Ltd produces three products: A, B and C. The following is an estimate of costs and revenue for the forthcoming year: A B C $ $ $ Sales Total Cost 41,000 75,000 48,000 48,000 67,000 42,000 Net Profit (loss) (7,000) 8,000 6.000 The total cost of each product comprises one - third fixed costs and two-third variable costs. Fixed costs are constant whatever the volume of sales. The managing director argues that because product A makes a loss, production of it should be discontinued. Comment on the managing director's argument.
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