Anton Valve Company produces a mechanical valve used in water systems. Three years ago the company introduced an electronic version of the valve. Sales of the mechanical model have steadily declined, and the company will report a loss on the product this year as follows:
If production of the mechanical valve is discontinued, product-level costs will be eliminated but facility level and corporate costs would not be affected.Required:1) Prepare a quantitative analysis that indicates whether the valve should be discontinued.2) What qualitative factors should be considered in this decision?
What will be an ideal response?
1) The relevant revenues and costs are as follows:
2) Qualitative factors include the possibility that employees will be disrupted (i.e., moved or discharged) and rumors about the company's financial condition may surface. Also, if the company discontinued production of this valve, sales of other products might decrease.
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