Zoota Ltd makes four products: Alta,Bepha,Delma and Gamta.The selling price and per unit costs are show below.*Alta and Delma share the same factory;therefore,monthly rent is allocated equally between the two products.Other allocated monthly fixed costs include administrative costs,which are allocated based on a $2/unit charge.Zoota Ltd decides to drop Delma because it is unprofitable.Christina Bobo,the management accountant of Zoota Ltd,suggests that by dropping Delma the company can save $1 x 5000 = $5000 a month.Your assessment of Christina's suggestion is:

Question

Quizplus · Accepted Answer

While dropping Delma may save $5000 in fixed costs, it would also mean losing $3 per unit. Therefore, overall, the company would incur a loss by dropping Delma. The qualitative factors such as customer demand and market competition should also be considered before making a decision.

Zoota Ltd Makes Four Products: Alta,Bepha,Delma and Gamta