When deciding whether to eliminate a segment, the segment should be dropped if its contribution margin less the avoidable fixed costs is positive.

Question

Quizplus · Accepted Answer

A segment should be considered for elimination if its contribution margin is less than its avoidable fixed costs, not the other way around. If the contribution margin less the avoidable fixed costs is positive, it means the segment is still contributing positively to covering the company's overall fixed costs and profit.

When Deciding Whether to Eliminate a Segment, the Segment Should