Declining Market, Inc., is considering the problem of when to stop production of a particular product in its product line. Sales of the product in question have been declining and all estimates are that they will continue to decline. Capital equipment used to manufacture the product is specialized but can be readily sold as used equipment. What, if anything, is wrong with a decision rule for this case that says, “Keep producing the product as long as its contribution to net earnings is positive”? [Contribution to net earnings, where t is the tax rate, is (1 - t) (Sales - Variable cost - Depreciation on equipment used to manufacture product).]
Answer to relevant QuestionsCommunities are frequently concerned about whether or not police are vigilant in carrying out their responsibilities. Several communities have experimented with incentive compensation for police. In particular, some cities ...A company recently raised the pay of employees by 20 percent. The productivity of the employees, however, remained the same. The CEO of the company was quoted as saying, “ It just goes to show that money does not motivate ...Coase Farm grows soybeans near property owned by Taggart Railroad. Taggart can build zero, one, or two railroad tracks adjacent to Coase Farm, yielding a net present value of $ 0, $ 9 million, or $ 12 million.Value of ...A Wall Street Journal article (December 26, 1996) describes a series of changes at the Pratt & Whitney plant in Maine that manufactures parts for jet engines. In 1993 it was about to be closed because of high operating costs ...ICB has four manufacturing divisions, each producing a particular type of cosmetic or beauty aid. These products are then transferred to five marketing divisions, each covering a particular geo-graphic region. Manufacturing ...
Post your question