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Question - Consider the following scenarios for Decision Making: Sparks Ltd produces three products: A, B and C. The following is an estimate of costs and revenue for the forthcoming year:
Consider the following scenarios for Decision Making:
A
B
C
Sales
41,000
75000
48000
Total Cost
48,000
67000
42000
Net Profit (loss)
(7,000)
8000
6000
The total cost of each product comprises one - third fixed costs and two - third variable costs. Fixed costs are constant whatever the volume of sales. The managing director argues that because product A makes a loss, production of it should be discontinued. Comment on the managing director's argument?
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