Managers should discontinue a business if its contribution margin is less than the sum of:
A) Relevant fixed costs and opportunity costs
B) Relevant fixed costs and sunk costs
C) Relevant opportunity costs and sunk costs
D) Relevant opportunity costs and profits

Question

Quizplus · Accepted Answer

The contribution margin represents the amount of revenue available to cover the fixed costs and provide profit. If the contribution margin is less than the sum of relevant fixed costs and opportunity costs, it means that the business is not generating enough profit to cover all of its costs and is losing money. Therefore, managers should discontinue the business to avoid further losses. Sunk costs are not relevant in this decision as they are already incurred and cannot be recovered regardless of the decision made.

Managers Should Discontinue a Business If Its Contribution Margin Is