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Axelrod Company_Gale t-shirts_dropping the product

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Question;Axelrod Company makes three types of t-shirts: Calm, Windy, and Gale. Mr. Brown, the general manager of the company is disappointed with low sales and low profitability of Gale and is considering dropping the product. He believes that such as move will allow him to focus more attention to other profitable lines. He discusses this with you and asks for your opinion. You gather the following information about last year?s performance of the three products.Clam Windy GaleUnits Sold 25,000 18,750 3,750Selling Price/unit $30 $32 $39Production cost::Direct Materials/unit $10 $10 $15Direct Labor/unit $14 $14 $21There is no variable overhead. Annual total fixed overhead amounts to $168,000 and will remain the same whether the product line is dropped or retained. The fixed overhead rate established by the company was $3.60 per unit. The analysis provided to Mr. Brown on the basis of which he was considering to drop Gale from the line of products sold was as follows:Clam Windy GaleSelling Price/unit $30.00 $32.00 $39.00Direct Materials/unit ($10.00) ($10.00) ($15.00)Direct Labor/unit ($14.00) ($14.00) ($21.00)Fixed Overhead/unit ($ 3.60) ($ 3.60) ($ 3.60)Operating profit per unit $2.40 $4.40 ($ 0.60)Given the foregoing information, what advice will you give to Mr. Brown?Explain the conceptual reasoning behind your advice. Also provide numerical analysis to support your explanation.

 

Paper#37398 | Written in 18-Jul-2015

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