Managerial Accounting Quiz
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RELEVANT COSTS AND SPECIAL DECISIONS
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Apex Industries operates five product lines, with Product Line D showing consistent losses. Management has gathered the following information for the annual keep-or-drop decision: Line D sales $1,200,000, variable cost ratio 65%, direct fixed costs $300,000, allocated fixed costs $180,000, and unavoidable costs $80,000 if the line is dropped. The production capacity freed by dropping Line D could be used to expand Line A, which would generate additional sales of $800,000 with a 45% contribution margin ratio. However, expanding Line A would require additional fixed costs of $150,000. What should management decide?
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