Profits for one of Company X's flagship products have been declining slowly for several years. The CFO investigated and determined that inflation has raised the cost of producing the product but consumers who were surveyed reported that they felt the product’s functionality didn't justify a higher price. As a result, the CFO recommended that the company stop producing this product because the CEO only wants products whose profit margins are increasing.
The answer to which of the following questions would be most useful in evaluating whether the CFO's decision to divest the company of its flagship product is warranted?
A. Does the company have new and profitable products available with which to replace the flagship product?-Even if it has,how does it relate to discontinuing previous products-The basis,as per the argument, should be decreasing margins and not new products replacing old products for more profit.
B. Will the rest of Company X's management team agree with the CFO's recommendation?-Clearly doesn't help anywhere
C. Can Company X sell the flagship product to new markets to increase its customer base?-Even if we increase the consumer base,the profit margin per product remains the same-So doesn't help either
D. Are there additional features that could be added to the product without raising the unit price?- If product has more functionalities at the same cost price,we can justify the high price of the product in the market for the additional functionalities-Which addresses the previous complains of the consumers & hence if such an option is possible,it will help assess whether the product should be discontinued or not
E. What percentage of Company X's revenues is represented by sales of the flagship product in question? Increasing margin and not proportion of Sales is the point of concern
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