The general manager at the Monroe Electronics Company has submitted the following information for a specific line of circuit boards with the recommendation to discontinue the phone style circuit boards because of its continued net operating income losses.
You have been asked to analyze this analysis to determine if the phone circuit boards should be discontinued. The special equipment used to produce the phone circuit boards has no resale value. If the phone circuit boards were discontinued, the two line supervisors assigned to the model would be discharged. Monroe has no other use for the capacity now being used to produce the phone circuit boards.
Should production and sale of the phone circuit boards be discontinued? Show your analysis to support your answer.
How might this same information be presented to make it more useful to management in assessing the long-run profitability of its various product lines?
What policy change would you recommend to management?
Contribution Margin 84,000
Less Total Fixed Expenses 95,000
Net Operating loss -11,000
Fixed Expenses 95,000
Less Supervisor Salaries 6,000
Loss on Discontinuation 89,000
No, Monroe should not discontinue its operations. The reason is that the operations are having a contribution of $84,000 and this money is contributing to the fixed costs of Mr. Monroe. In this case only one part of the fixed cost gets reduced if the operations are discontinued. This is the fixed cost of the two supervisor's salary. This ...
This explanation provides you a comprehensive argument relating to Monroe Electronics