Final answer:
Carla Vista Toy's management is considering eliminating product A, which has been showing a loss for several years. The company's annual income statement is a financial statement that shows the company's revenues, expenses, and profit or loss for a specific period, usually a year.
Step-by-step explanation:
Carla Vista Toy's management is considering eliminating product A, which has been showing a loss for several years. The company's annual income statement is a financial statement that shows the company's revenues, expenses, and profit or loss for a specific period, usually a year. By eliminating product A, the company can reduce its expenses and potentially improve its overall profitability.
Furthermore, the company should consider whether the product’s sales are contributing to covering any portion of the fixed costs and whether these sales would be replaced by other products or lost entirely. The firm might find that operating without Product A could reduce the overall loss, or that the contribution margin from Product A, even if it’s not covering all its costs, still helps in covering a portion of fixed costs, which would then have to be covered by other products if Product A is discontinued.