Real-world companies often seek to reduce the complexity of their operations in an attempt to increase profits. In 2012, Procter & Gamble (P&G) believed it could increase the company's profits by eliminating some product-lines. In 2017, P&G announced that it had "divested, discontinued, or consolidated 105 brands". As a result, even though its sales had decreased by 22 percent from 2012 to 2017, its profit as a percentage of sales had increased by 55 percent. 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 business 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 it revenues by 20 percent.

Required

1. Identify some cost savings these companies might realize by reducing the number of items they sell or use in production. Be as specific as possible and use your imagination.
2. Consider the additional information presented as follows, which is hypothetical. All dollar amounts are in thousands; unit amounts are not. Assume that P&G decides to eliminate one shampoo line, Luster, for one of its segments that currently produces three products. As a result, the following are expected to occur.

3. (1) The number of units sold for the segment is expected to drop by only 125,000 because of the elimination of Luster, since most customers are expected to purchase an 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 50,000 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 $40,000.

   (4) All of the supervisors for Luster were 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 book-value of $340,000 and can be sold for only $60,000.

   (6) Facility-level costs will continue to be allocated between the product lines based on the number of units produced.

   Prepare revised product-line earnings statements based on the elimination of Luster. (Hint: It will be necessary to calculate some per-unit data to accomplish this).

   Product-Line Earnings Statements (Dollar amounts are in thousands)
   Annual Costs of Operating Each Product Line	Anagen	Catagen	Luster	Total
   Sales in units	450,000	450,000	225,000	1,125,000
   Sales in dollars	900,000	900,000	450,000	2,250,000
   Unit-level costs:
   Cost of production	85,500	85,500	46,200	217,200
   Sales commissions	11,700	11,700	6,000	29,400
   Shipping and handling	20,250	18,000	9,000	47,250
   Miscellaneous	6,750	4,500	2,250	13,500
   Total unit-level costs	124,200	119,700	63,450	307,350
   Product-level costs:
   Supervisors salaries	9,600	7,200	2,400	19,200
   Facility-level costs:
   Rent	100,000	100,000	50,000	250,000
   Utilities	112,500	112,500	56,250	281,250
   Depreciation on equipment	400,000	400,000	200,000	1,000,000
   Allocated companywide expenses	22,500	22,500	11,250	56,250
   Total facility-level costs	635,000	635,000	317,500	1,587,500
   Total product cost	768,800	761,900	383,350	1,914,050
   Profit on products	$131,200	$138,100	$66,650	$335,950