Collage Ltd is closing one of its divisions. Operating data on this division follows:
$\begin{array} { l l }
\text { Sales } & \$ 120,000 \
\text { Variable costs } & 46,000 \
\text { Overhead } & 60,000
\end{array}$
Overhead consists of $50,000 in salary and $10,000 for rent and insurance. The salary is for the production manager, who will continue to work for Collage even if the division is closed.
Rent and insurance that will cease if the division is closed is an:
A) Unavoidable and irrelevant cost
B) Unavoidable and relevant cost
C) Avoidable and relevant cost
D) Avoidable and irrelevant cost

Question

Collage Ltd is closing one of its divisions. Operating data on this division follows: 
$\begin{array} { l l } 
\text { Sales } & \$ 120,000 \
\text { Variable costs } & 46,000 \
\text { Overhead } & 60,000
\end{array}$ 
Overhead consists of $50,000 in salary and $10,000 for rent and insurance. The salary is for the production manager, who will continue to work for Collage even if the division is closed.
Rent and insurance that will cease if the division is closed is an:
A) Unavoidable and irrelevant cost
B) Unavoidable and relevant cost
C) Avoidable and relevant cost
D) Avoidable and irrelevant cost

Quizplus · Accepted Answer

Rent and insurance costs that will cease if the division is closed are avoidable and relevant to the decision about closing the division.

Collage Ltd Is Closing One of Its Divisions Sales $120,000 Variable costs 46,000 Overhead 60,000\begin{array} { l l } \text { Sales } & \$ 120,000 \\\text { Variable costs } & 46,000 \\\text { Overhead } & 60,000\end{array} Sales Variable costs Overhead ​$120,00046,00060,000​

Collage Ltd Is Closing One of Its Divisions $\begin{array} { l l } \text { Sales } & \$ 120,000 \\\text { Variable costs } & 46,000 \\\text { Overhead } & 60,000\end{array}$