It is not necessary for ABC Department Store to drop the clothing line of business. ABC Company needs to make adjustments and profits will channel. Clothing line attracts more sales than the Hardware, meaning it has a wide customer base and can improve with an application of a critical approach. The company makes good sales out of clothing line but ends up in a loss. By looking at the direct clothing cost, there is much use in the production of clothing line thus a need to increase its selling price. The management of ABC should conduct an intensive research on the customer and establish a profiting price. The company can also consider reducing direct costs by use of cheaper but quality materials, and consider cutting on its labor.
Total fixed costs are an accumulation of expenses that remain constant, and a company has to pay (Garrison et al., 2009). The company should look at the expenses and establish how to adjust and lower them than sporting goods. Management and labor are some of the expenses easy to lower as well as an increase in sales to cover the high fixed costs. In addition, the company should consider widening marketing and production, and all cost end clothing manufactured.
Expenses are the first point of adjustment. Cost of labor should need reduction, implementation of effective operations, cancellation of unused or outdated services, and optimizing marketing thus paying less per customer. Receivable expenses should also be reduced (Schipper & Roman 2009). In this case, the company should ensure that customers pay in good time and on a consistent basis, as this reduces the chances of accounts ending in default or turning into doubtful accounts. The company should study its rival company. They should discover how the other companies are doing their production and most importantly, their cost of production. ABC Company should consider adding more quality and price to their products. Through these, the company overturns the negative net income into profit.
- Garrison, R. H., Eric, W. N., & Peter, C. B. (2009). Managerial Accounting. New York: McGraw- Hill Irwin
- Schipper, K., & Roman, L. W. (2009). Financial Accounting: An Introduction to Concept Methods, and Uses. Boston: Cengage Learning.
