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Operating expenses for a product line are $500,000 and 40% of them are fixed. What are the variable operating expenses?
A$300,000
B$200,000
C$360,000
D$500,000
Answer & Solution
Correct answer: A. $300,000
1. If 40% is fixed, the remaining 60% is variable.
2. $500,000 times 60% gives $300,000.
3. That $300,000 is avoided if the line is discontinued, so it is a relevant cost.
4. $200,000 is the fixed portion, which stays with the business either way.
_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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