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Cost of goods sold for a product line is $480,000 and 25% of it is fixed. What is the variable cost of goods sold?
A$120,000
B$480,000
C$300,000
D$360,000
Answer & Solution
Correct answer: D. $360,000
1. If 25% is fixed, the remaining 75% is variable.
2. $480,000 times 75% gives $360,000.
3. Only that $360,000 disappears if the line is dropped, so only it belongs in the comparison.
4. $120,000 is the fixed quarter, which continues whether or not the line is kept.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 9.3 Continue With or Discontinue a Product_
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