Discontinuing unprofitable products will increase profitability:
A)if the resources no longer required by the discontinued product can be eliminated
B)if capacity constraints are adjusted
C)automatically
D)when a large portion of the fixed costs are unavoidable

Question

Quizplus · Accepted Answer

Discontinuing unprofitable products will only increase profitability if the resources (including labor, equipment, and materials) associated with the discontinued product can be eliminated. If the resources cannot be reallocated, then the fixed costs associated with those resources will still need to be absorbed by the remaining products, ultimately reducing profitability. Capacity constraints may also need to be adjusted to accommodate the discontinuation of the product. However, automatically discontinuing unprofitable products without considering the impact on resources and capacity may not lead to increased profitability.

Discontinuing Unprofitable Products Will Increase Profitability