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Managerial Accounting

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Blu Co. Drop a Product Line: Wrong Assumption Fixed Costs

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Blu Co. has the following product line results for the most recent period:

Blu Co. Tall Medium Small Total
Sales \$150,000 \$170,000 \$180,000 \$500,000
Variable costs \$75,000 \$119,000 \$111,600 \$305,600
Fixed costs \$60,000 \$70,000 \$80,000 \$210,000
Operating Profit \$15,000 (\$19,000) (\$11,600) (\$15,600)

Blu Co. is trying to eliminate the loss. The operating losses for Medium and Small would be eliminated completely under one (generally unlikely) assumption.

What is that assumption?

A

That all fixed costs are avoidable.

B

That all fixed costs are unavoidable.

C

That all fixed costs are shared or common costs.

D

That all fixed costs are allocated costs.