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Furst, Inc. believed it could increase the company's profits by eliminating some product-lines. Other companies have also tried to improve their financial performance by downsizing.

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Furst, Inc. believed it could increase the company's profits by eliminating some product-lines. Other companies have also tried to improve their financial performance by downsizing. In November 2017, General Electric announced it would begin a downsizing operation that would result in their exiting businesses using over $20 billion in assets in the next one to two years. In January 2018, Newell Brands, the company whose products include Tupperware, Sharple pens, Elmer's Glue, and Rawlings sports products, announced it would be reducing its product offerings to the extent that it would close half of its facilities and reduce its revenues by 20 percent Consider the additional information presented as follows, which is hypothetical. All dollar amounts are in thousands, unit amounts are not. Assume that Furst decides to eliminate one shampoo product-line, Luster, for one of its segments that currently produces three products. As a result, the following are expected to occur (1) The number of units sold for the segment is expected to drop by only 225,000 because of the elimination of Luster, since most customers are expected to purchase a Anagen or Catagen product instead. The shift of sales from Luster to Anagen and Catagen is expected to be evenly split . In other words, the sales of Anagen and Catagen will each increase by 35,000 units. (2) Rent is paid for the entire production facility, and the space used by Luster cannot be sublet. (3) Utilities costs are expected to be reduced by $65,000 (4) All of the supervisors for Luster were all terminated. No new supervisors will be hired for Anagen or Catagen (5) Half of the equipment being used to produce Luster is also used to produce the other two products and its depreciation cost must be absorbed by them. The remaining equipment has a remaining a book value of $440,000 and can be sold for only $160,000, (6) Facility level costs will continue to be allocated between the product dines based on the number of units produced. Product Line Earnings statement (Dollar amounts are in thousands Annual Coats ot Operating mach Product Line Aagen Catagen Sales nuits 590.000 590000 sales in dollar 51.180,000 SI IRO,000 Unit-level couts cost of production 112100 112, 100 Sales como 15,340 15.30 Shipping and handling 26.550 23.00 Miscellaneous DO 3900 Luster 295.000 5590.000 Total 1.675.000 92.950,000 60,100 7,200 IL.300 900 284.000 37.00 61,950 1.50 Saved Revised Product line Earnings Statements Annual Costs of Operating Each Product Line Anagen Sales in units Sales in dollars Unit-level costs: Catagen Totals st Total unit-level costs Product-level costs Facility-level costs Total facility-level costs Total product cost Profit on products Sale of Luster equipment Segment earnings Furst, Inc, believed it could increase the company's profits by eliminating some product-lines. Other companies have also tried to improve their financial performance by downsizing. In November 2017, General Electric announced it would begin a downsizing operation that would result in their exiting businesses using over $20 billion in assets in the next one to two years. In January 2018, Newell Brands, the company whose products include Tupperware, Sharpie pens, Elmer's Glue, and Rawlings sports products, announced it would be reducing its product offerings to the extent that it would close half of its facilities and reduce its revenues by 20 percent Consider the additional information presented as follows, which is hypothetical. All dollar amounts are in thousands, unit amounts are not Assume that Furst decides to eliminate one shampoo product-line, Luster, for one of its segments that currently produces three products. As a result, the following are expected to occur (1) The number of units sold for the segment is expected to drop by only 225,000 because of the elimination of Luster, since most customers are expected to purchase a Anagen or Catagen product instead. The shift of sales from Luster to Anagen and Catagen is expected to be evenly split. In other words, the sales of Anagen and Catagen will each increase by 35,000 units. (2) Rent is paid for the entire production facility, and the space used by Luster cannot be sublet. (3) Utilities costs are expected to be reduced by $65,000. (5) Half of the equipment being used to produce Luster is also used to produce the other two products and its depreciation cost must (4) All of the supervisors for Luster were all terminated. No new supervisors will be hired for Anagen or Catagen. be absorbed by them. The remaining equipment has a remaining a book-value of $440,000 and can be sold for only $160,000. (6) Facility-level costs will continue to be allocated between the product lines based on the number of units produced. Product Line Earnings Statements (Dollar amounts are in thousands Annual Coats of Operating Esch Product LIDO Anagen Catagen Sales in its 590,000 590.000 Sales in dollars $1,180.000 $1,180,000 Unit-level couts Cost of production 112,100 112,100 sales comissions 15,340 15,340 Shipping and handling 26,550 23,600 Miscellaneous 8,850 5.900 Luster 295,000 5590.000 Total 1.475.000 $2.950.000 60,100 7,200 11.800 3,900 284.300 37,880 61,950 18.650

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