Consideration of labour costs for cat toilet in gross profit planning

Question

Why are the labour costs (in the amount of 5 million) not added in the gross profit planning? Since cat toilets are no longer produced, the costs for the process are eliminated in addition to the sales.

Answer 1

Hi David,

I'm a bit confused by your question, but I do think the answer is in the case (See below):

Termination of production and sale of cat lavatories
- Cat lavatories are a loss-maker as they do not generate gross profit but account for personnel costs and other operating costs. Consequently, cat lavatories reduce profit. Since costs for employees and other operating expenses can be eliminated, production should be discontinued.
- Evaluation: Benefits result from an increase in profit. Possible disadvantages, on the other hand, are for example damage of reputation when ending production and reducing staff.

Answer 2

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Answer 3

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