Question
Sweeney & Sewards, Inc. produces a mechanical valve used in water systems. Three years ago the company introduced an electronic version of the valve. Sales
Sweeney & Sewards, Inc. produces a mechanical valve used in water systems. Three years ago the company introduced an electronic version of the valve. Sales of the mechanical model have steadily declined, and the company will report a loss on the product this year as follows:
Sales revenue | $400,000 |
Less costs: | |
Unit-level manufacturing cost | $315,000 |
Batch-level costs | $5,000 |
Product-level costs | $10,000 |
Facility-level costs | $60,000 |
Allocated corporate costs | $23,000 |
Total Costs | $413,000 |
Net loss | ($13,000) |
If production of the mechanical valve is discontinued, product-level costs could be eliminated, but facility level and corporate costs would not be affected.
Required:
a) Prepare a quantitative analysis indicating whether the mechanical valve production should be discontinued. Clearly indicate your recommendation to keep, or not to keep, the product line on a quantitative basis.
b) Exclusive of your quantitative analysis above, list two qualitative factors that should be considered in this decision.
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