A segment of a business should probably be discontinued if
A)its common costs exceed its contribution margin.
B)its contribution margin exceeds its controllable fixed costs and its common costs.
C)it has a net loss.
D)cannot produce a positive contribution margin.

Question

Quizplus · Accepted Answer

If a business segment cannot produce a positive contribution margin, it means that its revenues cannot cover its variable costs. In this case, continuing the segment will lead to net losses, and therefore it should be discontinued. A segment with a net loss can still be profitable if its contribution margin covers all its fixed and variable costs, but a segment that cannot even generate a positive contribution margin should be discontinued. Options A and B consider the relationship between costs and revenues, but they do not directly address the segment's ability to be profitable.

A Segment of a Business Should Probably Be Discontinued If