Question

If, by dropping a product line, a company cannot avoid as much in fixed costs as it loses in contribution margin, the company should:

a. keep the product line
b. drop the product line
c. increase fixed costs
d. none of the above

Answer 1

a. keep the product line

Step-by-step explanation:

• The product line is a segment of related products which the company makes under a single brand and this product is similar and focus on the same market factor. Have similar attributes pricing and the quality.

• The process that the traders adopt to separate products in the same category is through the quality and price levels. The techniques of the price lining and bundle pricing, bait pricing, and leader pricing.

• If the company cannot avoid the direct and the common fixed costs of the product that are allocated to segments shows a loss in the contribution margins the company can keep the product line.