When a department or a product is showing a loss after all costs have been traced and allocated, a company has no option but to make the decision to either close the department or drop the product.

Question

Quizplus · Accepted Answer

The decision to close a department or drop a product involves considering not just the direct costs but also the contribution margin, potential for future growth, strategic importance, and how fixed costs allocated to the department or product would be absorbed by other parts of the business.

When a Department or a Product Is Showing a Loss