How should that portion of fixed costs that are unavoidable be handled when making a decision on whether to eliminate an unprofitable segment?
A)They should be subtracted from the contribution margin and if that results in a net loss, the segment should be eliminated.
B)They should not be considered as they are not relevant.
C)They should be allocated to other segments.If that causes a loss in another segment, that segment should be eliminated as well.
D)Fixed costs are never relevant.

Question

Quizplus · Accepted Answer

Unavoidable fixed costs should not be considered when deciding whether to eliminate an unprofitable segment. These costs will continue regardless of whether the segment is eliminated, so they are not relevant to the decision-making process. Only the variable costs and contribution margin associated with the segment should be considered.

How Should That Portion of Fixed Costs That Are Unavoidable