The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow: If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of the fixed costs are not avoidable.
Assuming all other conditions stay the same, at what level of annual sales of Doombugs (in units) should Draper be indifferent between discontinuing Doombugs or continuing the production and sale of Doombugs?
A) 20,000 units
B) 18,000 units
C) 6,000 units
D) 4,000 units

Question

The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow:  If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of the fixed costs are not avoidable.
Assuming all other conditions stay the same, at what level of annual sales of Doombugs (in units) should Draper be indifferent between discontinuing Doombugs or continuing the production and sale of Doombugs?
A) 20,000 units 
B) 18,000 units 
C) 6,000 units 
D) 4,000 units

Quizplus · Accepted Answer

Price per unit = $150,000 ÷ 15,000 units = $10 per unit
Variable expense per unit = $120,000 ÷ 15,000 units = $8 per unit
($10 per unit − $8 per unit) × Quantity sold − $8,000 > $0
($10 per unit − $8 per unit) × Quantity sold > $8,000
$2 per unit × Quantity sold > $8,000
Quantity sold > $8,000 ÷ $2 per unit = 4,000 units

The Draper Corporation Is Considering Dropping Its Doombug Toy Due