Sweeney & Sewards, Inc. produces a mechanical valve used in water systems. Three
ID: 2417206 • Letter: S
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 of the mechanical model have steadily declined, and the company will report a loss on the product this year as follows:
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.
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)Explanation / Answer
Contribution lost ($80,000)
less:Avoidable cost 10,000
Net loss ($70,000)
It should not be discontnued since its discontinuance will be lead to more loss than when produced
b)Quantitative factors- loss of skills and demoralising of employees.
Contribution lost ($80,000)
less:Avoidable cost 10,000
Net loss ($70,000)
It should not be discontnued since its discontinuance will be lead to more loss than when produced
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