A common mistake managers make in deciding to close a division is
A)Allowing allocated fixed costs to influence the decision.
B)Allowing qualitative issues to influence the decision.
C)Allowing avoidable costs to influence the decision.
D)All of these ans choices are correct.

Question

Quizplus · Accepted Answer

Allowing allocated fixed costs to influence the decision is a common mistake. Allocated fixed costs are costs that are assigned to a particular division regardless of whether or not the division is closed. These costs should not be considered when making a decision to close a division because they are not avoidable costs. Avoidable costs are costs that can be eliminated by closing the division, such as variable costs specific to that division. Failing to distinguish between avoidable and allocated fixed costs can lead to a decision to close a division that is actually profitable.

A Common Mistake Managers Make in Deciding to Close a Division