MCAA U3IP

Management Control
Name
Institutional Affiliation
Careful considerations have to be taken before deciding what actions have to be considered for a production line that is recording a net loss. At Overall Production Company, an income statement shows that the company is experiencing a net operating loss of $15,000 resulting from the production of round heat exchangers.
The initial step is to consider the impact of the financial sector on the company after closing down the production of round heat exchangers. The company will lose $80,000 contribution margin earned from the sale of round heat exchangers. The total contributions margin will reduce to $510,000. The Company will be relieved of $47,000 spent on advertising expenses and payment of the line supervisor. However, depreciation and general factory overhead expenses will be distributed to the other production lines (Susmita, 2018). Assuming these expenses are allocated equally to each line of production, the total fixed costs will be $483,000 as shown in table 1.
Total Round Rectangular Octagonal
Sales $860,000 – $500,000 $360,000
Variable expenses $350,000 – $200,000 $150,000
Contribution margin $510,000 – $300,000 $210,000
Less fixed expenses
Advertisement $175,000 – $110,000 $65,000
Depreciation $95,000 – $50,000 $45,000
Line Supervisor salaries $13,000 – $7,000 $6,000
General factory overhead $200,000 – $114,000 $86,000
Total fixed expenses $483,000 – $281,000 $202,000
Net operating income $27,000 – $19,0000 $8,000
Table 1: Income statement after closing production of round heat exchangers
The income statement shows that halting the production of round heat exchangers will reduce the total net operating income of the company by $33,000.

Depreciation and general factory expenses will increase in the other production lines. The company will experience loss due to lack of additional $80,000 which were earned from round heat exchanger production. This amount proves very beneficial in offsetting the cost of expenses (Ingram, n.d.).
The round heat exchangers production line had a net operating loss of $15,000. This shows that the company earnings are affected negatively by closing the production of round heat exchanger. Also, the specialized equipment used to produce round heat exchangers cannot be resold. Considering this, the round heat exchanger production line should not be closed.
This information shows that production of round heat exchangers is essential to the company. The management can look into ways of improving the sales performance of the product to make it profitable (Rawes, 2018). Measures that the administration can implement include looking for potential markets and changing its advertising tact.
Bouvar Company has set common management goals and strategies for its three companies. This system of management can fail in addressing specific needs that are unique to each company. In improving their performance, the Bouvar Company should set management policies that satisfy particular goals for its company. This strategy will enable the management of Overall Manufacturing Company to set specific goals that can improve its productivity.

References
Ingram, K. (2018). Keep or Drop: Discontinuing products, departments, and locations – Accounting In Focus. Retrieved from https://accountinginfocus.com/managerial-accounting-2/short-term-decision-making/keep-or-drop-discontinuing-products-departments-and-locations/Rawes, E. (2018). The Definition of “Traceable Costs.” Retrieved from https://smallbusiness.chron.com/definition-traceable-costs-24131.htmlSusumita, B. (2018). When to Discontinue a Product Line – PanXpan Knowledge. Retrieved from http://knowledge.panxpan.com/articles/when-to-discontinue-a-product-line