Flex Star also has a division that makes and sells garbage bags, Alex was not happy with the result of that business unit and is thinking about eliminating it$.$ The net loss of $$41,000$ over a sale of $$675$K has been bothering Alex. He has three sales representatives in for this product line and has a pricelist that is shared among sales team, he leaves it to the sales team lead to monitor the price.

His sales teams are paid commission based on the calculated sales of units and standard price that company has determined, not on GP$.$ The reason Alex does this is because he wants to give the sales

team the freedom to negotiate prices, he is not sure how effective it can be and asks for your analysis and recommendation. How would this impact on his upcoming budget and what would be the accounting treatment if he gets rid of this business unit.

Actual$-$ Garbage bags Unit Original Budget

Sold units $2100019000$

Sales $ $675,000$ $ $786,000$

Materials $ $(360,000)$ $ $(320,000)$

Labour $ $(305,000)$ $ $(307,900)$

CM $ $10,000$ $ $158,100$

Fixed Costs $ $(51,000)$ $ $(42,000)$

Net Profit $($loss$)$ $ $(41,000)$ $ $116,100$ Product Line Analysis

$-$ Issue: The garbage bags division is experiencing a net loss despite sales, raising concerns about its profitability$$and$$viability$.$