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6 May, 2015 - 17:10

Products, branches, segments, departments, and territories that are unprofitable should be considered for elimination. If eliminating the unprofitable segments has no effect on fixed costs, the overall net income from operations will improve from the reduction in variable costs. This depends, however, on whether the remaining products or segments are competing or complementary. In the later case, revenue may decrease creating an opportunity cost in excess of the out-of-pocket cost reduction. Fixed costs can also play a role if alternative uses for the plant capacity exist. Lastly, layoffs can affect morale.