Consider the following scenarios for Decision Making:

Sparks Ltd produces three products: A, B, and C. The following is an estimate of costs and revenue for the forthcoming year:

Consider the following scenarios for Decision Making:

A B C

Sales 41,000 75000 48000

Total Cost 48,000 67000 42000

Net Profit (loss) (7,000) 8000 6000

The total cost of each product comprises onethird 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 directors argument?