Question
You work for the company that makes four products, and have been asked by the head of the Finance Department to find a way to
You work for the company that makes four products, and have been asked by the head of the Finance Department to find a way to measure the profitability of the four individual products: A, B, C and D, and to identify any that might be losing money and should be discontinued. All four products are priced properly and produced efficiently, so increasing the prices or cutting costs is not the answer. The revenue generated by the four products and the costs of the company are provided in the table. Read the information below the table and answer each of the following four questions:
- Find a way to measure the profitability of the four individual products.
- Based on your method, what is the profitability of each product?
- What recommendations would you make regarding possibly discontinuing one or more products?
4. Do you see any problems with your method and results?
| Products | ||||
| A | B | C | D | |
Revenue ($M) | $240 | $192 | $236 | $72 | |
Direct Cost ($M) | $160 | $160 | $160 | $40 | |
Joint Cost ($M) | $80 | $80 | |||
Common Cost ($M) | $40 |
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