Bern, Inc. is considering dropping one product line due to continuing losses.If the product line is discontinued, then Bern could avoid $111,300 per year in fixed costs.Revenue and cost data for the product line for the past year follow:

Sales (20,000 units)

$300,000

Variable costs

180,000

Contribution margin

120,000

Fixed costs

140,000

a. From a purely economic perspective, Bern would be indifferent between discontinuing or continuing the product line at 18,550 units of annual sales.Why? (10 points)

b. Suppose that if the product line were dropped, the production and sale of other products would increase so as to generate a $15,000 increase in the contribution margin received from the other products.If all other conditions are the same (and the fixed cost reduction of $111,300 is still applicable), what is the change in annual operating income from dropping the product line? (10 points)

Answer rating: 100% (QA)

a From a purely economic perspective Bern would be indifferent between discontinuing or continuing the product line at 18550 units of annual sales bec... View the full answer