Response to the following problem:
You Decide: Should the management of a company consider fixed costs in the decision-making process, or should they ignore fixed costs and base their decision on what makes the most business sense?
Recently, the board of directors for a television manufacturing company was considering a change in products from TVs to computers. The board claims, after performing a C-V-P analysis of a new computer manufacturing plant facility, that the computer industry is more profitable and would increase the bottom line immediately. However, just six months earlier, the company built a state-of-the-art television manufacturing plant. The overhead costs on the television plant represent a sizable portion of the company's fixed costs.
If the board voted to begin computer manufacturing, a new plant would need to be constructed. What should the board do?