A common mistake managers make in deciding to close a division is allowing
A)allocated fixed costs to influence the decision.
B)qualitative issues to influence the decision.
C)avoidable costs to influence the decision.
D)customer needs and desires to influence the decision.

Question

Quizplus · Accepted Answer

Allocated fixed costs should not be a deciding factor in closing a division. Instead, managers should focus on the variable costs and the contribution margin of the division. If the division's contribution margin is negative, it may be a good indication that the division should be closed. However, if allocated fixed costs are taken into consideration, it may falsely inflate the overall cost of the division and lead to the wrong decision. Therefore, managers should avoid using allocated fixed costs in their decision-making process.

A Common Mistake Managers Make in Deciding to Close a Division