Suppose Cool Rays Is Considering Dropping Its Tinted Lens Product

question 197

Essay

Suppose Cool Rays is considering dropping its Tinted Lens product line.Assume that during the past year,the Tinted Lens product line income statement showed the following:

Fixed manufacturing overhead costs account for 40% of the cost of goods,while only 30% of the operating expenses are fixed.Since the Tinted Lens line is only one of Cool Rays product lines,only $175,000 of direct fixed costs (the majority of which is advertising)will be eliminated if the product line is discontinued.The remainder of the fixed costs will still be incurred by Cool Rays.If the company decides to drop the product line,what will happen to the company's operating income? Should Cool Rays drop the product line?

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Definitions:

Incentive Based Compensation

A form of payment designed to reward employees for achieving specific performance targets or objectives.

Performance Measures

Metrics or indicators used to evaluate and track the efficiency, effectiveness, and productivity of an organization, employee, or process.

Rewarding Outcomes

Benefits or positive results achieved from specific actions or decisions, often used to motivate behavior or assess the success of projects.

Incentive Contract

An agreement designed to motivate performance by aligning the interests of parties, typically involving rewards for achieving specified objectives.