If financial statement data are used to evaluate a decision to discontinue a business:
A) Average costs are often mistakenly included as relevant information
B) Average costs are often correctly included as relevant information
C) Qualitative factors are irrelevant
D) Financial statement data is useless in this decision-making context

Question

Quizplus · Accepted Answer

Average costs are often mistakenly included as relevant information when evaluating a decision to discontinue a business. This is because the decision should focus on relevant costs, which are future costs that will differ under alternative actions. Average costs may not accurately reflect the incremental costs or savings associated with discontinuing the business.

If Financial Statement Data Are Used to Evaluate a Decision