Comment on the managing directors argument

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Question - Consider the following scenarios for Decision Making: Sparks Ltd produces three products: A, B and C. The following is an estimate of costs and revenue for the forthcoming year:

Consider the following scenarios for Decision Making:

 

A

B

C

Sales

41,000

75000

48000

Total Cost

48,000

67000

42000

Net Profit (loss)

(7,000)

8000

6000

The total cost of each product comprises one - third fixed costs and two - third variable costs. Fixed costs are constant whatever the volume of sales. The managing director argues that because product A makes a loss, production of it should be discontinued. Comment on the managing director's argument?

Reference no: EM132758810

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