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[Related to the Apply the Concept on page 647] An article in the Wall Street Journal noted that many economists believe that GDP data for India are unreliable because “most enterprises are tiny and unregistered, and most workers are employed off the books. The government’s infrequent surveys represent only a best guess of the value being added in back-alley workshops, outdoor markets and other cash-based corners of the economy.”
What problems can be caused for a government or for businesses in a country if the government cannot accurately measure GDP?
Dexter Products, Inc., manufactures and sells a number of items, including an overnight case. The company has been experiencing losses on the overnight case for some time, as shown on the following contribution format income statement:
*Allocated on the basis of machine-hours.
**Allocated on the basis of sales dollars.
Discontinuing the overnight cases would not affect the company’s sales of its other product lines, its total general factory overhead, or its total purchasing department expenses.
Would you recommend that the company discontinue the manufacture and sale of overnight cases? Support your answer with appropriate computations.