{"id":619,"date":"2018-04-19T20:01:04","date_gmt":"2018-04-19T20:01:04","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&#038;p=619"},"modified":"2024-04-29T17:34:21","modified_gmt":"2024-04-29T17:34:21","slug":"add-or-drop-decisions","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/add-or-drop-decisions\/","title":{"raw":"Add or Drop Decisions","rendered":"Add or Drop Decisions"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Create a report outlining the data to support an add or drop decision<\/li>\r\n<\/ul>\r\n<\/div>\r\nRemember our Jen\u2019s Sweaters add or drop question? Here is a review:\r\n\r\nhttps:\/\/youtu.be\/Dedeck0HVXM\r\n\r\nManagers need to decide which product lines to continue, add or drop. An add or drop decision is based only on the relevant costs involved in the process. As we have discussed earlier, some costs are not relevant to a decision, so as we look at options between our product lines, we need to decide which costs should be considered as decisions are made. It isn\u2019t always the item we sell for the highest price! Costs <strong>can<\/strong> outweigh revenues, and in those cases, we need to evaluate and analyze to determine what items to manufacture, offer as services or stock on our shelves.\r\n\r\nLet\u2019s look at a grocery store example. We have five flavors of ice cream in our freezer, but would like to determine how to best utilize the freezer space. Our accounting department gives us the following information regarding revenues and costs for our ice cream freezer:\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<thead>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 99.8414%; height: 15px; text-align: center;\" colspan=\"6\">Morrie's Grocery: Ice Cream Cooler\u2014What Should We Stock?<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 16.6667%; height: 15px;\" scope=\"row\"><\/th>\r\n<th style=\"width: 16.6667%; text-align: right; height: 15px;\" scope=\"col\">Vanilla<\/th>\r\n<th style=\"width: 16.6667%; text-align: right; height: 15px;\" scope=\"col\">Chocolate<\/th>\r\n<th style=\"width: 16.6667%; text-align: right; height: 15px;\" scope=\"col\">Strawberry<\/th>\r\n<th style=\"width: 16.6667%; text-align: right; height: 15px;\" scope=\"col\">Neapolitan<\/th>\r\n<th style=\"width: 16.5079%; text-align: right; height: 15px;\" scope=\"col\">Butter Pecan<\/th>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 16.6667%; height: 15px;\" scope=\"row\">Sales<\/th>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">1000<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">1200<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">900<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">700<\/td>\r\n<td style=\"width: 16.5079%; text-align: right; height: 15px;\">1050<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 16.6667%; height: 15px;\" scope=\"row\">Variable Costs<\/th>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">400<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">720<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">270<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">490<\/td>\r\n<td style=\"width: 16.5079%; text-align: right; height: 15px;\">577.5<\/td>\r\n<\/tr>\r\n<tr style=\"height: 30px;\">\r\n<th style=\"width: 16.6667%; height: 30px;\" scope=\"row\"><span style=\"text-decoration: underline;\"><strong>Contribution Margin<\/strong><\/span><\/th>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\"><span style=\"text-decoration: underline;\"><strong>600<\/strong><\/span><\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\"><span style=\"text-decoration: underline;\"><strong>480<\/strong><\/span><\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\"><span style=\"text-decoration: underline;\"><strong>630<\/strong><\/span><\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\"><span style=\"text-decoration: underline;\"><strong>210<\/strong><\/span><\/td>\r\n<td style=\"width: 16.5079%; text-align: right; height: 30px;\"><span style=\"text-decoration: underline;\"><strong>472.5<\/strong><\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 30px;\">\r\n<th style=\"width: 16.6667%; height: 30px;\" scope=\"row\">Direct Fixed Costs<\/th>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">100<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">180<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">90<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">105<\/td>\r\n<td style=\"width: 16.5079%; text-align: right; height: 30px;\">105<\/td>\r\n<\/tr>\r\n<tr style=\"height: 30px;\">\r\n<th style=\"width: 16.6667%; height: 30px;\" scope=\"row\">Allocated Fixed Costs<\/th>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">150<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">180<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">135<\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">140<\/td>\r\n<td style=\"width: 16.5079%; text-align: right; height: 30px;\">157.5<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 16.6667%; height: 15px;\" scope=\"row\"><span style=\"text-decoration: underline;\"><strong>Net Income<\/strong><\/span><\/th>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\"><strong><span style=\"text-decoration: underline;\">350<\/span><\/strong><\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\"><strong><span style=\"text-decoration: underline;\">120<\/span><\/strong><\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\"><strong><span style=\"text-decoration: underline;\">405<\/span><\/strong><\/td>\r\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\"><strong><span style=\"text-decoration: underline;\">-35<\/span><\/strong><\/td>\r\n<td style=\"width: 16.5079%; text-align: right; height: 15px;\"><strong><span style=\"text-decoration: underline;\">210<\/span><\/strong><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nFrom this spreadsheet, it would look like dropping the Neapolitan would be a good idea, right?\r\n\r\nLet\u2019s look a little closer at this situation to determine if that is the right decision.\r\n\r\nSo, if we get rid of the Neapolitan flavor, what expenses will be relevant to our decision?\r\n\r\nVariable costs would go away, as that cost is directly related to the Neapolitan ice cream. Direct fixed costs would also go away, as those costs are directly attributed to that flavor too. But what happens to the allocated fixed costs? Those costs would need to be distributed among the remaining flavors. Remember things like rent and utilities will occur regardless of what products we carry.\r\n<table style=\"border-collapse: collapse; width: 99.682%; height: 156px;\" border=\"1\">\r\n<thead>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 618px; height: 15px; text-align: center;\" colspan=\"3\">Drop the Neapolitan?<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 199px; height: 15px;\"><\/td>\r\n<td style=\"width: 198px; height: 15px;\"><\/td>\r\n<td style=\"width: 199px; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 199px; height: 15px;\" scope=\"row\">Variable Costs Avoided<\/th>\r\n<td style=\"width: 198px; height: 15px; text-align: right;\">490<\/td>\r\n<td style=\"width: 199px; height: 15px; text-align: right;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 199px; height: 15px;\" scope=\"row\">Direct Fixed Costs Avoided<\/th>\r\n<td style=\"width: 198px; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">105<\/span><\/td>\r\n<td style=\"width: 199px; height: 15px; text-align: right;\">595<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 199px; height: 15px;\" scope=\"row\">Less: Sales Revenue Lost<\/th>\r\n<td style=\"width: 198px; height: 15px; text-align: right;\"><\/td>\r\n<td style=\"width: 199px; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">700<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 199px; height: 15px;\" scope=\"row\">Decrease in Net Income<\/th>\r\n<td style=\"width: 198px; height: 15px; text-align: right;\"><\/td>\r\n<td style=\"width: 199px; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">105<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nThe variable costs and direct fixed costs are called avoidable costs. These are the costs that would go away by eliminating this flavor.\r\n\r\nSo you can see now, that eliminating the Neapolitan would have a negative effect on the net income. \u00a0What if we drop chocolate?\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<thead>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 33.3333%; height: 15px; text-align: center;\" colspan=\"3\">Drop the Chocolate?<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\r\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\r\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 33.3333%; height: 15px;\" scope=\"row\">Variable Costs Avoided<\/th>\r\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\">720<\/td>\r\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 33.3333%; height: 15px;\" scope=\"row\">Direct Fixed Costs Avoided<\/th>\r\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">180<\/span><\/td>\r\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\">900<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 33.3333%; height: 15px;\" scope=\"row\">Less: Sales Revenue Lost<\/th>\r\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">1200<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<th style=\"width: 33.3333%; height: 15px;\" scope=\"row\">Decrease in Net Income<\/th>\r\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><\/td>\r\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">300<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nSo who would drop chocolate anyway, right?\r\n\r\nSo you can see the decision to add or drop a product isn\u2019t as easy as it looks! They may increase the sales of chocolate, if they eliminated another flavor. Remember that is called an opportunity cost!\r\n\r\nNow let\u2019s practice:\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/325956cb-ec89-4682-bb96-9b165f7d3820\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Create a report outlining the data to support an add or drop decision<\/li>\n<\/ul>\n<\/div>\n<p>Remember our Jen\u2019s Sweaters add or drop question? Here is a review:<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"Part 3 - Relevant Costs for Decision Making - Drop or Retain\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/Dedeck0HVXM?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Managers need to decide which product lines to continue, add or drop. An add or drop decision is based only on the relevant costs involved in the process. As we have discussed earlier, some costs are not relevant to a decision, so as we look at options between our product lines, we need to decide which costs should be considered as decisions are made. It isn\u2019t always the item we sell for the highest price! Costs <strong>can<\/strong> outweigh revenues, and in those cases, we need to evaluate and analyze to determine what items to manufacture, offer as services or stock on our shelves.<\/p>\n<p>Let\u2019s look at a grocery store example. We have five flavors of ice cream in our freezer, but would like to determine how to best utilize the freezer space. Our accounting department gives us the following information regarding revenues and costs for our ice cream freezer:<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<thead>\n<tr style=\"height: 15px;\">\n<th style=\"width: 99.8414%; height: 15px; text-align: center;\" colspan=\"6\">Morrie&#8217;s Grocery: Ice Cream Cooler\u2014What Should We Stock?<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr style=\"height: 15px;\">\n<th style=\"width: 16.6667%; height: 15px;\" scope=\"row\"><\/th>\n<th style=\"width: 16.6667%; text-align: right; height: 15px;\" scope=\"col\">Vanilla<\/th>\n<th style=\"width: 16.6667%; text-align: right; height: 15px;\" scope=\"col\">Chocolate<\/th>\n<th style=\"width: 16.6667%; text-align: right; height: 15px;\" scope=\"col\">Strawberry<\/th>\n<th style=\"width: 16.6667%; text-align: right; height: 15px;\" scope=\"col\">Neapolitan<\/th>\n<th style=\"width: 16.5079%; text-align: right; height: 15px;\" scope=\"col\">Butter Pecan<\/th>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 16.6667%; height: 15px;\" scope=\"row\">Sales<\/th>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">1000<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">1200<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">900<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">700<\/td>\n<td style=\"width: 16.5079%; text-align: right; height: 15px;\">1050<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 16.6667%; height: 15px;\" scope=\"row\">Variable Costs<\/th>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">400<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">720<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">270<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\">490<\/td>\n<td style=\"width: 16.5079%; text-align: right; height: 15px;\">577.5<\/td>\n<\/tr>\n<tr style=\"height: 30px;\">\n<th style=\"width: 16.6667%; height: 30px;\" scope=\"row\"><span style=\"text-decoration: underline;\"><strong>Contribution Margin<\/strong><\/span><\/th>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\"><span style=\"text-decoration: underline;\"><strong>600<\/strong><\/span><\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\"><span style=\"text-decoration: underline;\"><strong>480<\/strong><\/span><\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\"><span style=\"text-decoration: underline;\"><strong>630<\/strong><\/span><\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\"><span style=\"text-decoration: underline;\"><strong>210<\/strong><\/span><\/td>\n<td style=\"width: 16.5079%; text-align: right; height: 30px;\"><span style=\"text-decoration: underline;\"><strong>472.5<\/strong><\/span><\/td>\n<\/tr>\n<tr style=\"height: 30px;\">\n<th style=\"width: 16.6667%; height: 30px;\" scope=\"row\">Direct Fixed Costs<\/th>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">100<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">180<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">90<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">105<\/td>\n<td style=\"width: 16.5079%; text-align: right; height: 30px;\">105<\/td>\n<\/tr>\n<tr style=\"height: 30px;\">\n<th style=\"width: 16.6667%; height: 30px;\" scope=\"row\">Allocated Fixed Costs<\/th>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">150<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">180<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">135<\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 30px;\">140<\/td>\n<td style=\"width: 16.5079%; text-align: right; height: 30px;\">157.5<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 16.6667%; height: 15px;\" scope=\"row\"><span style=\"text-decoration: underline;\"><strong>Net Income<\/strong><\/span><\/th>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\"><strong><span style=\"text-decoration: underline;\">350<\/span><\/strong><\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\"><strong><span style=\"text-decoration: underline;\">120<\/span><\/strong><\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\"><strong><span style=\"text-decoration: underline;\">405<\/span><\/strong><\/td>\n<td style=\"width: 16.6667%; text-align: right; height: 15px;\"><strong><span style=\"text-decoration: underline;\">-35<\/span><\/strong><\/td>\n<td style=\"width: 16.5079%; text-align: right; height: 15px;\"><strong><span style=\"text-decoration: underline;\">210<\/span><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>From this spreadsheet, it would look like dropping the Neapolitan would be a good idea, right?<\/p>\n<p>Let\u2019s look a little closer at this situation to determine if that is the right decision.<\/p>\n<p>So, if we get rid of the Neapolitan flavor, what expenses will be relevant to our decision?<\/p>\n<p>Variable costs would go away, as that cost is directly related to the Neapolitan ice cream. Direct fixed costs would also go away, as those costs are directly attributed to that flavor too. But what happens to the allocated fixed costs? Those costs would need to be distributed among the remaining flavors. Remember things like rent and utilities will occur regardless of what products we carry.<\/p>\n<table style=\"border-collapse: collapse; width: 99.682%; height: 156px;\">\n<thead>\n<tr style=\"height: 15px;\">\n<th style=\"width: 618px; height: 15px; text-align: center;\" colspan=\"3\">Drop the Neapolitan?<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"width: 199px; height: 15px;\"><\/td>\n<td style=\"width: 198px; height: 15px;\"><\/td>\n<td style=\"width: 199px; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 199px; height: 15px;\" scope=\"row\">Variable Costs Avoided<\/th>\n<td style=\"width: 198px; height: 15px; text-align: right;\">490<\/td>\n<td style=\"width: 199px; height: 15px; text-align: right;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 199px; height: 15px;\" scope=\"row\">Direct Fixed Costs Avoided<\/th>\n<td style=\"width: 198px; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">105<\/span><\/td>\n<td style=\"width: 199px; height: 15px; text-align: right;\">595<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 199px; height: 15px;\" scope=\"row\">Less: Sales Revenue Lost<\/th>\n<td style=\"width: 198px; height: 15px; text-align: right;\"><\/td>\n<td style=\"width: 199px; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">700<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 199px; height: 15px;\" scope=\"row\">Decrease in Net Income<\/th>\n<td style=\"width: 198px; height: 15px; text-align: right;\"><\/td>\n<td style=\"width: 199px; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">105<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The variable costs and direct fixed costs are called avoidable costs. These are the costs that would go away by eliminating this flavor.<\/p>\n<p>So you can see now, that eliminating the Neapolitan would have a negative effect on the net income. \u00a0What if we drop chocolate?<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<thead>\n<tr style=\"height: 15px;\">\n<th style=\"width: 33.3333%; height: 15px; text-align: center;\" colspan=\"3\">Drop the Chocolate?<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\n<td style=\"width: 33.3333%; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 33.3333%; height: 15px;\" scope=\"row\">Variable Costs Avoided<\/th>\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\">720<\/td>\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 33.3333%; height: 15px;\" scope=\"row\">Direct Fixed Costs Avoided<\/th>\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">180<\/span><\/td>\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\">900<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 33.3333%; height: 15px;\" scope=\"row\">Less: Sales Revenue Lost<\/th>\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">1200<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<th style=\"width: 33.3333%; height: 15px;\" scope=\"row\">Decrease in Net Income<\/th>\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><\/td>\n<td style=\"width: 33.3333%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">300<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>So who would drop chocolate anyway, right?<\/p>\n<p>So you can see the decision to add or drop a product isn\u2019t as easy as it looks! They may increase the sales of chocolate, if they eliminated another flavor. Remember that is called an opportunity cost!<\/p>\n<p>Now let\u2019s practice:<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Questions<\/h3>\n<p>\t<iframe id=\"assessment_practice_325956cb-ec89-4682-bb96-9b165f7d3820\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/325956cb-ec89-4682-bb96-9b165f7d3820?iframe_resize_id=assessment_practice_id_325956cb-ec89-4682-bb96-9b165f7d3820\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-619\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Add or Drop Decisions. <strong>Authored by<\/strong>: Freedom Learning Group. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Part 3 - Relevant Costs for Decision Making - Drop or Retain. <strong>Authored by<\/strong>: Tony Bell. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/Dedeck0HVXM\">https:\/\/youtu.be\/Dedeck0HVXM<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":62559,"menu_order":7,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Add or Drop Decisions\",\"author\":\"Freedom Learning Group\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"Part 3 - Relevant Costs for Decision Making - Drop or Retain\",\"author\":\"Tony Bell\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/Dedeck0HVXM\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"}]","CANDELA_OUTCOMES_GUID":"f9acb49e-e3f1-4650-91f8-2048b86c69f7, 135c46e7-f2e5-4a55-a5fb-24d8d1f5e184","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-619","chapter","type-chapter","status-publish","hentry"],"part":111,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/619","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/users\/62559"}],"version-history":[{"count":12,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/619\/revisions"}],"predecessor-version":[{"id":4152,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/619\/revisions\/4152"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/parts\/111"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/619\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/media?parent=619"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapter-type?post=619"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/contributor?post=619"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/license?post=619"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}