Bikelites Company Is Considering Eliminating Model AE1 from Its Rear

Essay

Bikelites Company is considering eliminating Model AE1 from its rear lights line because of losses over the past quarter.The past three months of information for model AE1 is summarised below:
$$\begin{array} { l r } \text { Sales (2000 units) } & \$ 500000 \\\text { Manufacturing costs: } & \\\quad \text { Direct materials } & 280000 \\\text { Direct labour ( } \$ 15 \text { per hour) } & 60000 \\\text { Support } & 200000 \\\text { Operating loss } & ( \$ 40000 )\end{array}$$
Support costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE1 that has no resale value.
Should Bikelites Company eliminate Model AE1 from its product line? Why or why not?