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)both allowing qualitative issues to influence the decision,and avoidable costs to influence the decisions.

Question

Quizplus · Accepted Answer

Allowing allocated fixed costs to influence the decision is a common mistake because these costs would be incurred regardless of whether or not the division is closed. These costs should not be considered when evaluating the profitability of the division. Instead, only avoidable costs should be considered, such as direct materials and labor costs, which could be eliminated if the division is closed. Qualitative issues, such as the impact on employees and the company's reputation, should also be considered, but they should not be the sole deciding factor.

A Common Mistake Managers Make in Deciding to Close a Division