Beautiful Hair Inc. makes and distributes hair products to retail stores, beauty salons, and barber shops. Early in 2016, officers of the company decided to develop and market a line of shampoos and hair conditioners under their own private brand. They contracted with another company to manufacture and package the products. After the end of the first year, however, officers of Beautiful Hair Inc. became quite concerned over the profitability of the new line. An analysis of operations is shown below:

An analysis of the fourth quarter 2016 showed sales of $6,000 for the quarter. Several officers in the company have suggested that the line of products should be discontinued.
INSTRUCTIONS
1. Based on the information above, what is the amount of income or loss for the fourth quarter?
2. Based on the information above only, should the venture be discontinued? The fixed costs are allocated costs and will not be eliminated by discontinuing the venture.
3. What questions, other than those related to the information given above, should be asked by the officers to arrive at a decision on whether or not to discontinue the product line?
4. What sales volume would be necessary to pay all variable costs and cover the allocated fixed costs?
Analyze: Assume that the sales staff has been asked to forfeit half of its sales commissions for the fourth quarter of 2016. What effect do you think this measure would have on the company's income for the period?

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Fixed Cost per Month Percent of Selling Price per Unlt Average cost of produds Average cost of containers and packaging Average freight in Average delivery costs Sales commissions dvertising expenses: 30% 10 12 ariable $500 Warehousing costs ariable Fixed Other costs: ariable 10 S525