Snowy Mountain Retailers are considering closing one of its low-profit departments. Assume that discontinuance of this department will not affect sales of the remaining departments. Which of the cost classifications below should be compared with departmental income to determine whether or not to close the department?
A) Fixed costs
B) Variable costs
C) Controllable costs
D) Avoidable costs

Question

Quizplus · Accepted Answer

Avoidable costs are the costs that can be eliminated by discontinuing the department, and are therefore the relevant costs to be compared with departmental income in deciding whether or not to close the department. Fixed costs would be incurred regardless of whether the department operates or not, while variable costs are not directly affected by the decision to close the department. Controllable costs are costs that can be influenced by the departmental manager, but may not necessarily be avoidable if the department is closed.

Snowy Mountain Retailers Are Considering Closing One of Its Low-Profit