Chundas is considering dropping product X, which last year reported a net loss of $12,000. The income statement showed variable costs of $70,000 and sales of $90,000. If product X is dropped, the productive capacity will not be used to produce any other product. Which of the following statements is true with respect to the decision concerning product X?

a. Chundas should not drop the product line since the contribution margin is a positive $20,000.

b. The fixed costs of $32,000 would have to be absorbed by the other product lines and those product lines might then have net losses, making them candidates for elimination. Eventually, the company could face a “death spiral” since no product line would be able to absorb the unavoidable fixed costs.

c. The company should consider whether product X is a complementary product and whether dropping product X would have an effect on other product lines.