Evaluate whether unprofitable product line be disestablished

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Question - One of Solana Ltd's product line has been unprofitable for the past two years. The latest income statement for the product line is as follows:

Sales revenue


231,000

Less: Cost of sales


101,000

Gross profit


130,000

Operating expenses



  Depreciation

33,000


  Insurance

17,000


  Manager salary

14,000


  Supplies

21,000


  Utilities

13,000


  Wages

61,000


Total operating expenses


159,000

Profit or loss


(29,000)

In relation to the operating expenses, utilities, manager salary and $17,000 of the depreciation expense are allocated to this product line.

Required - Evaluate whether the unprofitable product line should be disestablished from a financial standpoint. Support your answer with relevant costs and benefit analysis.

Reference no: EM133180951

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