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21 November, 00:22

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

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  1. 21 November, 00:28
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    The correct answer to the following question will be "keeping the product line since they would lose an extra $40000 if they dropped".

    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."
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