When deciding whether to add or delete a department,managers should keep the department as long as ________ from the department exceeds ________.
A) contribution margin; variable costs
B) contribution margin; common costs
C) contribution margin; avoidable fixed costs
D) contribution margin; unavoidable fixed costs

Question

Quizplus · Accepted Answer

Managers should keep the department as long as the contribution margin from the department exceeds its avoidable fixed costs. This means that the department is generating enough revenue to cover its direct (variable) costs as well as its avoidable fixed costs. Contribution margin is revenue minus variable costs, and avoidable fixed costs are costs that can be eliminated if the department is closed. Therefore, choice C is the best answer.

When Deciding Whether to Add or Delete a Department,managers Should