Question

Coronado Industries has three product lines. Its only unprofitable line is Corn Nuts, the results of which appear below for 2019:

Sales $1500000
Variable expenses 1010000
Fixed expenses 600000
Net loss$ (110000)

If this product line is eliminated, 30% of the fixed expenses can be eliminated. How much are the relevant costs in the decision to eliminate this product line?

Answer 1

Relevant costs= 1,190,000

Step-by-step explanation:

Giving the following information:

Variable expenses 1010000

Fixed expenses 600,000

If this product line is eliminated, 30% of the fixed expenses can be eliminated.

The only relevant costs are the variable cost and the avoidable fixed cost.

Variable cost= 1,010,000

Fixed costs= 600,000*0.3= 180,000

Relevant costs= 1,190,000