Problem

Profitability Analysis: Dropping a Product Line? High Point Furniture Company (HPF) manufa...

Profitability Analysis: Dropping a Product Line? High Point Furniture Company (HPF) manufactures high-quality furniture for sale directly to exclusive hotels, interior designers, and select retail outlets throughout the world. HPF’s products include upholstered furniture, dining tables, bedroom furniture, and a variety of other products, including end tables. Through attention to quality and design innovation, and by careful attention to changing consumer tastes, HPF has become one of the most successful furniture manufacturers worldwide. Hal Blin, the chief operating officer of HPF, is reviewing the most recent sales and profits report for the three best-selling end tables in HPF’s product line—the Parker, Virginian, and Weldon end tables. Hal is concerned about the relatively poor performance of the Weldon line. He discusses the prospects for the line with HPF’s marketing and sales vice-president, Joan Hunt. Joan notes that there has been no significant trend up or down in any of the end table lines, though the direction of consumer tastes would probably favor the Virginian and Parker lines. Hal and Joan agree that this may be the time for further analysis to determine whether the Weldon line should be discontinued.

Required

1. Using Excel or an equivalent spreadsheet, develop an analysis that can help Hal decide about the future of the Weldon line. Should the Weldon line be dropped? Why or why not?
2. Using the spreadsheet you developed in requirement 1, determine whether your answer would change if sales of Weldon are expected to fall by 80%.
3. Again using the spreadsheet in requirement 1, determine whether the Weldon line should be discontinued if the resources devoted to Weldon could be used to increase sales by 10% in each of the other two lines.
4. Again using the spreadsheet in requirement 1 and using Goal Seek in Excel or an equivalent, determine the sales increase (or decrease) in the sales of the Parker line that would be necessary to maintain the firm’s overall profit determined in requirement 1 if the Weldon line were discontinued. For an illustration of Goal Seek, see Exhibit 9.5 in Chapter 9.
5. Given your answers to requirements 1 through 4 earlier, consider the overall competitive environment facing HPF and make your recommendations regarding the firm’s strategic position and direction at this time.