Broadway Store is considering closing down one of its low-profit departments.Assume that discontinuance of this department will not affect sales of the remaining departments.Which of the cost classifications below should be compared with departmental income to determine whether or not to close the department?

Question

Quizplus · Accepted Answer

The best cost classification to be compared with departmental income to determine whether or not to close the department is avoidable costs. These costs are those that can be eliminated if the department is shut down. If the department's income is less than its avoidable costs, then it would be wise to close the department to avoid further losses. The other cost classifications (variable costs, direct costs, and controllable costs) may not fully capture the true costs of the department and may not be sufficient in making a decision on whether to close the department.

Broadway Store Is Considering Closing Down One of Its Low-Profit