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The general manager at the Overall Manufacturing Company has submitted the following information for a specific line of heat exchangers with the recommendation to discontinue the round style heat exchanger because of its continued net operating income losses.
Overall Manufacturing Company
Less variable expenses
Less fixed expenses:
Line supervisors’ salaries
General factory overhead*
Total fixed expenses
Net operating income (loss)
*A common fixed cost that is allocated on the basis of sales dollars
Analyze the above information to determine if the round heat exchanger should be discontinued. The special equipment that is used to produce the round heat exchanger has no resale value. If the round heat exchanger is discontinued, the two line supervisors who are assigned to the model would be discharged. Overall Manufacturing Company has no other use for the capacity that is now being used to produce the round heat exchanger.
Include the following in your analysis: