Hilton Manufacturing Company
1. If we divested product 103, it would:
a. decrease sales by $5,200
b. Decrease expenses by:
i. $88 for compensation insurance ii. $1300 for direct labor iii. $946 for materials iv. $68 for supplies
v. $59 for power vi. $20 repairs
This would decrease that 158 by 2,719 which would make this very unprofitable. It was a good move to not divest this product group.
2. In January 2005, we should not lower the price to $8.64 if we dropped the price, we would be making a loss on this product. An argument could be made that if we lower the price we will increase volume, but the case stated that dropping the price has historically NOT led to increased volume. I would not cut the price unless we could somehow make up the margin with a decrease in costs. We also could not drop the price in hope to retaining margin from the other products because they are currently operating at a loss.

3. There most profitable product line is Product 101. It is the only product making money. In 2003 it had the highest sales and the highest net income. It does have the highest expenses but that is based on variable costs and the amount of volume they produced.

4. The biggest reason for the change could be that products 102 and 103 were selling more volume thus making more money. Even though they are still selling at a loss, it is less of a loss than in 2003. Since the income from product 101 is holding to plan, it is helping with the losses from 102 and 103. Also, the variance between standard and actual had more of a positive impact than a negative