Consider the following statements: I. A division's net operating income, after deducting both traceable and allocated common fixed costs, is negative.
II) The division's avoidable fixed costs exceed its contribution margin.
III) The division's traceable fixed costs plus its allocated common corporate costs exceed its contribution margin.
Which of the above statements is a valid reason for eliminating the division?
A)Only I
B)Only II
C)Only III
D)Only I and II

Question

Quizplus · Accepted Answer

Statement II is a valid reason for eliminating the division as it indicates that the division's contribution towards covering its avoidable fixed costs is not sufficient, leading to a negative net operating income. Statement I may also be a reason for eliminating the division, but it is not necessarily always the case since a negative net operating income could be due to other factors as well, such as uncontrollable external factors. Statement III does not provide a clear reason for eliminating the division.

Consider the Following Statements: I