Horton and Associates Produces Two Products Named BigBlast and LittleBlast

Multiple Choice

Horton and Associates produces two products named BigBlast and LittleBlast. Last month 4,000 units of BigBlast and 1,000 units of LittleBlast were produced and sold. Following are average prices and costs for last month: $\begin{array}{lrr}&\text { BiqBlast }&\text { LittleBlast }\\\text { Selling price } & \$ 100 & \$ 200 \\\text { Direct materials } & (25) & (75) \\\text { Direct labour } & (15) & (35) \\\text { Variable overhead } & (5) & (30) \\\text { Product line fixed costs } & (10) & (40) \\\text { Corporate fixed costs } & (25) & (25) \\\text { Average margin per unit }&\$20&\$5\end{array}$ The production lines for both products are highly automated, so large changes in production cause very little change in total direct labour costs. Workers who are classified as direct labour monitor the production line and are permanent employees who regularly work 40 hours per week. All costs other than "corporate fixed costs" listed under each product line could be avoided if the product line were dropped.
The following qualitative factors are relevant to Horton's decision:
I. Would dropping one product affect the sales of the other product?
II. Are all product line fixed costs completely avoidable?
III. Would layoffs affect other workers' morale?

A) I only
B) I and III only
C) I, II, and III
D) II and III only