An architecture firm currently offers services that appeal to both individuals and commercial clients. If the firm decides to discontinue services to individuals because of ongoing losses, which of the following costs could the company likely avoid?
A) General corporate overhead that was allocated to individual clients.
B) Building depreciation.
C) Insurance.
D) Variable operating costs.
E) Monthly installment payments on general-purpose, computer drafting equipment.

Question

Quizplus · Accepted Answer

Variable operating costs are directly associated with the level of service provided. By discontinuing services to individuals, the firm can avoid costs that vary with the amount of service provided to this client group, such as materials, labor, and utilities directly tied to these projects. Fixed costs like general overhead, building depreciation, insurance, and installment payments on equipment would remain unchanged by the decision to discontinue services to individuals.

An Architecture Firm Currently Offers Services That Appeal to Both