Pirate Company's management is considering dropping its small television product line due to continued operating losses. Pirate has forecasted an operating loss of $25,000 for the upcoming year. Fixed expenses for the upcoming year are forecasted at $45,000, of which $30,000 are considered to be avoidable. Should Pirate Company drop the small television product line?

Question

Quizplus · Accepted Answer

The avoidable fixed costs of $30,000 exceed the forecasted operating loss of $25,000, indicating that dropping the product line would save more in costs than the loss incurred by keeping it.

Pirate Company's Management Is Considering Dropping Its Small Television Product