Question

A product line should be dropped when a. there will be a positive change in income if the product line is dropped. b. all of these answer choices are correct. c. it has a positive contribution margin. d. it has unavoidable fixed costs.

Answer 1

Answer:

a. there will be a positive change in income if the product line is dropped

Explanation:

The decision regarding whether a product line should be continued or dropped should take into consideration all the relevant costs and net income before and after dropping such a product line.

While considering costs, unavoidable fixed costs need not be considered as those would be incurred irrespective of the product line getting dropped or continued.

A Product line should be dropped only when it results into a positive change in the net income which means, the net income after dropping such a product line should be more than the net income before dropping.