What will most likely occur if a company eliminates an unprofitable segment when a portion of fixed costs are unavoidable?
A) All expenses of the eliminated segment will be eliminated.
B) Net income will decrease.
C) Net income will increase.
D) The company's variable costs will increase.

Question

Quizplus · Accepted Answer

Eliminating an unprofitable segment will not remove all expenses, especially if some fixed costs are unavoidable and cannot be eliminated. These fixed costs will be redistributed among the remaining segments, potentially lowering the overall net income if the eliminated segment was contributing to covering a portion of those fixed costs.

What Will Most Likely Occur If a Company Eliminates an Unprofitable