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:

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)

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.

Answer rating: 100% (QA)

Contribution lost 80000 lessAvoidable cost 100... View the full answer