Product Line Analysis in Accounting

The video tutorial discusses the decision-making process regarding whether to continue or discontinue a product line. It emphasizes the importance of analyzing whether the product's revenue exceeds its direct costs, including fixed costs. An example is provided where a company considers dropping a small product line due to a net loss. However, the analysis shows that removing the product would result in a larger overall loss due to common fixed costs. The tutorial highlights the need to consider all relevant costs and revenues before making such decisions.

What is the primary factor to consider when deciding whether to continue a product line?

• The popularity of the product

• The revenue exceeding directly traceable costs

• The product's market share

• The number of employees working on the product

Which costs are crucial to consider when making a decision about a product line?

• Only variable costs

• Indirect costs

• Only fixed costs

• Direct costs, including variable and direct avoidable fixed costs

In the example provided, what is the net loss if the small product line is discontinued?

• $44,000

• $4,000

• $64,000

• $40,000

What happens to the common fixed costs if the small product line is discontinued?

• They remain unchanged

• They are transferred to the large product line

• They are eliminated

• They are reduced

Why should the company not drop the small product line despite its current loss?

• It has lower production costs

• It has potential for future growth

• It contributes to a larger overall loss if discontinued

• It is more popular than the large product line