Briefly state why you agree or do not agree with the If a product line generates a loss, that product line should be dismissed.

Management Accounting Block Revision Mock Exams

Disagree – Profits perse of a product line is not enough consideration for discontinuation as it factors in an element of fixed costs allocated to the product line. These costs would remain whether the product line is discontinued or not.
• The deciding factor therefore should be the contribution margin of the product line, if the contribution margin is positive the product line should be retained as it contributes something towards the recovery of the fixed costs.
• The product line should only be discontinued if the contribution margin (i.e. sales – variable costs) is negative.

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