Question

Burger Emporium Inc. is currently losing $100,000 per year on its Zhou Burger product line. The revenue from the Zhou Burger is $500,000 per year. The related variable costs are $300,000 and the fixed costs specific to the Zhou Burger operation are $300,000 per year. Burger Emporium Inc. is deciding whether or not they should drop their Zhou Burger line. They suspect $160,000 of the fixed costs will be avoidable if they drop the line. Assuming there are no opportunity costs, what should they do from a financial perspective

Answer 1

The correct answer to the following question will be "keeping the product line since they would lose an extra $40000 if they dropped".

Step-by-step explanation:

Keep Drop

Loss $100000 (given) -

Fixed asset loss - (300000-160000)

Loss $100000 140000

If dropped, so the $40000 damage would be included. Such that the correct approach is "keeping the product line since they would lose an extra $40000 if they dropped."