X has been in the pesticide industry for the last 40 years. It has three insecticide products in the market and all of them have posted a high level of sales over the last 10 years. The profitability per product is shown below:

Product X has been in the market for 10 years. It had remained the largest contributor to the company's profits since 2013 and sales is still increasing. Product Y has long been in the market but sales has not increased in the last three years due to competition from new products in the insecticide bracket. Profitability remains high for the product. Product Z on the other hand is the newest product by the company. Its contribution to profits is low, but good enough to cover a portion of the fixed overhead expenses.

 

THE 2020 FORECAST

 

The manager has informed his team that the insecticide industry will remain basically the same the following year. With this in mind, he has instructed to concentrate selling Products X and Y, and stop selling Product Z as it has very minimal contribution.

 

As it turned out, the sales performance for Products X and Y remained the same, while the team did not sell Product Z. The company suffered net losses for the year.

1.    Was the manager correct in his assessment of product profitability and his corresponding strategy?

2.    If you were the consultant of the firm, what would you recommend?

3.    Is Product Z worth selling? Justify your answer.

Transcribed Image Text:

2019 INCOME STATEMENT (VALUES IN '000) PRODUCT Y Z TOTAL SALES 800,000 900,000 200,000 1,900,000 COST 400,000 600,000 150,000 1,150,000 GROSS PROFIT 400,000 300,000 50,000 750,000 OVERHEAD EXPENSES OPERATING INCOME 725,000 25,000 2019 INCOME STATEMENT (VALUES IN '000) PRODUCT Y Z TOTAL SALES 800,000 900,000 200,000 1,900,000 COST 400,000 600,000 150,000 1,150,000 GROSS PROFIT 400,000 300,000 50,000 750,000 OVERHEAD EXPENSES OPERATING INCOME 725,000 25,000

Answer rating: 100% (QA)

Analysis of Xs Product Profitability and Strategy 1 Managers Assessment and Strategy Partially Corre... View the full answer