Potential advantages of dropping a product line or other segment include avoiding more fixed costs than the company loses in contribution margin.
A section should best be introduced if the increase in total contribution margin is extra than the increase in fixed value, a segment needs to be dropped only if the decrease in general contribution margin is less than the lower in fixed cost.
While finding out if a business enterprise has to drop an unprofitable section, the corporation must create a section contribution margin profits statement. If the contribution margin is advantageous, the enterprise has to recollect direct and commonplace constant charges, what to do with freed capability and the impact on sales of different products.
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