REPLY TO CLASSMATES POST WK4

Chapter 7 DB Topic #4 - Zuiderweg, Donna

According to our text book, when a company like Procter & Gamble considers dropping a product line, the decision “…hinges primarily on the impact the decision will have on net operating income” (Noreen & Garrison, 2015, p. 287). Consequently, only the costs that can be avoided if the product line is discontinued are relevant to the decision. Examples include salaries paid to employees working directly on the product and advertising expenses specific to the product. Sunk costs, future costs and allocated fixed costs should not be factored into the decision of whether or not to drop the product line.

An example of a product line that Procter & Gamble has spun off in recent history is the entire line of CoverGirl cosmetics to the Coty company in 2015. The deal was similar to the 2012 spin-off of P&G product line Folgers coffee to J.M. Smucker Co. (Coolidge, 2015).