A company should
A)eliminate any segment in which the contribution margin is less than the fixed costs that are unavoidable.
B)eliminate an unprofitable product line as it will always increase the total profits of a company.
C)eliminate an unprofitable product as fixed expenses allocated to the eliminated segment will likely be eliminated.
D)identify the relevant costs in deciding whether to eliminate an unprofitable segment.

Question

Quizplus · Accepted Answer

In deciding whether to eliminate an unprofitable segment or product, it is important to consider the relevant costs. The contribution margin should be compared to the avoidable fixed costs, and any non-relevant costs (such as common fixed costs) should be allocated appropriately. Simply eliminating an unprofitable segment or product without considering the relevant costs could actually decrease the company's overall profits. Therefore, option D is the best choice.

A Company Should