In a decision as to whether or not to drop a product, fixed costs that have been allocated to that product are generally not relevant unless there is a savings of fixed costs as a result of dropping the product.

Question

Quizplus · Accepted Answer

Fixed costs that have been allocated to a product are already sunk costs and cannot be recovered regardless of whether or not the product is dropped. Therefore, they are not relevant in the decision-making process unless there is a potential savings of fixed costs as a result of dropping the product.

In a Decision as to Whether or Not to Drop