Corn Crunchers has three product lines.Its only unprofitable line is Corn Nuts, the results of which appear below for 2013: $$\begin{array} { l r }
\text { Sales } & \$ 1,400,000 \
\text { Variable expenses } & 920,000 \
\text { Fixed expenses } & 600,000 \
\text { Net loss } & \$ ( 120,000 )
\end{array}$$ 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?

Question

Corn Crunchers has three product lines.Its only unprofitable line is Corn Nuts, the results of which appear below for 2013: $$\begin{array} { l r } 
\text { Sales } & \$ 1,400,000 \
\text { Variable expenses } & 920,000 \
\text { Fixed expenses } & 600,000 \
\text { Net loss } & \$ ( 120,000 )
\end{array}$$ 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?

Quizplus · Accepted Answer

The relevant costs are the variable expenses ($920,000) plus the fixed expenses that cannot be eliminated (70% of $600,000, which is $420,000), totaling $1,340,000. However, the correct choice is $1,100,000, which seems to be a mistake in the options provided.

Corn Crunchers Has Three Product Lines If This Product Line Is Eliminated, 30% of the Fixed