Question

A particular product line is most likely to be dropped when: Group of answer choices its total fixed costs are more than its contribution margin. its variable costs are more than its fixed costs. its variable costs are equal to the square root of fixed costs less the wages of the factory security personnel its avoidable fixed costs are more than its contribution margin. its unavoidable fixed costs are more than its contribution margin.

Answer 1

Answer:

A particular product line is most likely to be dropped when:

• its total fixed costs are more than its contribution margin
• its variable costs are more than its fixed costs
• its unavoidable fixed costs are more than its contribution margin.

Explanation:

The aim of every producer is to maximize profit and to make this possible, the cost of producing a particular product should fall below the contribution margin.

In the case that the gross profit is always negative due to high cost of production, further production should be discouraged.

The decision to drop a particular product line is usually reached when:

• Its total fixed costs are more than its contribution margin: Here, the company will run at a loss. It is sustainable to continue production..
• Its variable costs are more than its fixed costs: This is also an unfavorable situation that does not sustain mass production. Therefore, further production should discontinue.
• its unavoidable fixed costs are more than its contribution margin: At this rate, profit cannot be maximized. It is a lose-lose situation for the company.