Hi, There is a case on Yale case book, the answer says: "Our client will save $6,000/year in costs and suffer a maximum reduction of $1,500/year in profits. This is a net gain of $4,500/year". Just want to clarify this statement is wrong. The net gain should be 1500/year, not 4500/year.
Thanks
Freda
Thank you!
Hi, thank you for this answer! I am actually also struggling to understand the solution of this case, and why the company would experience a "net gain" by shutting down one product segment that has a profit of $1,500/year and a cost of $6,000/year. When does it make sense to stop one product segment to reduce costs, when this specific product is still profitable? I guess it depends on the profit margin of the other products; any thoughts on that?
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