The Company offers two products to the customers- printer and computer. The Companys printer segment has not reported a profit
The Company offers two products to the customers- printer and computer. The Company’s printer segment has not reported a profit for several years. The Company has provided the recent income statement of the company. The Company is considering whether to keep the printer product line or drop it?
|Printer Segment||Computer Segment||Total|
|Salary of Segment||$1,500||3,000||$4,500|
An investigation has revealed that the general expense and administrative expenses will not be affected by dropping the printer segment. If the Printer segment is dropped, then The Company could sell the printers for $5,000, and they can rent this free space to another company for $6,000 annually.
Additional factors to be considered while articulating the problem and proposing possible solutions for the question of ‘dropping or keeping the segment’ are as follows: • Any other condition(s) that may be considered apart from the ones stated in the case • Impact on all stakeholders • Short-term and long-term impact on the company and stakeholders • Possibility to add any new segments • Company strategy about the diversity in products versus specialization on a single product • Current economic condition (the current state of the given economy in a particular region or country), such as economic downturn, economic boom, financial crises, Covid-19, etc.
Requirement 1: Identify the following items and explain them. • relevant (avoidable) and irrelevant (unavoidable) costs (2 Marks) • recurring and non-recurring benefits
Requirement 2: Financial (dis)advantage of dropping the segment for this year and the following years. (Show all computations for financial (dis)advantage analysis to receive credit)
Requirement 3: Articulate (elaborate on) the problem and propose the possible solutions by both considering the result of your financial (dis)advantage analysis and the additional factors. (Explain it clearly and comprehensively and propose at least 3 possible solutions to receive credit).
Requirement 4: What is your final decision on the printer segment? (Explain it clearly and comprehensively to receive credit).