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ACCOUNTING 102 CHAPTER 4, CH 2, CHAPTER 2, ACCOUNTING TEST 2,
ACCT TEST 2, ACCOUNTING CHAPTER QUIZZES 11,12,13, QUIZ 3
ACCOUNTING EXAM 2, ACCT CHAP 4, ACCOUNTING 102 CHAPTER 1,
ACCOUNTING 102 CHAPTER 2, ACCOUNTING 102 CHAPTER 3
(QUESTIONS AND ANSWERS 10)
"Which cost driver is most appropriate to use when allocating the company president's salary? - Correct
Answer Number of departments"
The process of assigning a cost to two or more designated cost objects is - Correct Answer cost
allocation"
"The contribution margin is determined by subtracting - Correct Answer variable product and variable
period cost from sales."
"Of the following statements, which is NOT true concerning indirect costs? - Correct Answer An
indirect cost can be fixed but it cannot be variable" "Logan Corporation has 30 employees, 20 in Department A and 10 in Department B. Logan incurred $180,000 in fringe benefits costs last year. How much in fringe benefit costs should be allocated to
Department A? - Correct Answer $120,000"
"Which of the following would be classified as an indirect cost in a department store? Assume the cost
object is the children's department. - Correct Answer utility costs"
"Saylind Molding paid $280,000 in rent for the year. The company's three departments are headrests, armrests, and air ducts. The departments occupy 5,000, 6,300, and 2,700 square feet, respectively. How
much of the rent cost should be allocated to the products made in the air ducts department? - Correct
Answer $54,000"
"Employees of DTI, Inc., worked 1,600 direct labor hours in January and 1,000 direct labor hours in February. DTI expects to use 18,000 direct labor hours during the year, and expects to incur $22,500 of workers compensation insurance cost for the year. The cash payment for this cost will be paid in April.
How much insurance premium should be allocated to products made in January and February? -
Correct Answer $2,000; $1,250"
"Costs that can be traced to objects in a cost-effective manner are called - Correct Answer direct costs"
"Which of the following is the most logical cost driver for allocating the telephone bill among four
departments? - Correct Answer telephone usage in minutes"
"Handy Hiking produces backpacks. In 2005, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 4,000 backpacks at a total cost of $110,000. In January, it produced 2,500 backpacks at a total cost of $87,500. Using the high/low method, the total estimated
fixed cost was - Correct Answer $50,
Computed at the high point: Total cost − Variable cost = Fixed cost $110,000 − (4,000 units × $15) = $50,000" "Alpha Company is selecting a cost driver to use in allocating utilities costs to its departments. The best
cost driver - Correct Answer has a strong cause-and-effect relationship to the cost being allocated.
is one for which information is readily available. seems acceptable and reasonable to the managers of the departments. All of the above" "Which of the following best identifies the decision-making relationship between cost drivers, cost
objects and accumulated cost? - Correct Answer Cost drivers are used to allocate estimated
accumulated cost to cost objects"
"When manufacturing air conditioners, which of the following would be considered an indirect cost? -
Correct Answer Cost of inspecting air conditioners"
"The Human Resources department costs total $162,800. The Human Resources department is responsible for recruiting, hiring and managing benefits. Which of the following cost drivers would be
most appropriate for allocating the Human Resources department costs? - Correct Answer Number of
part time employees" "Using the direct method to allocate the Human Resources' department and cleaning department costs,
what is the appropriate overhead allocation to department A? - Correct Answer $258,750"
"The department A supervisor wants to allocate the Human Resources' costs using Full-Time employees and The department D supervisor wants to allocate the Human Resources' costs using the total number
of employees. Which of the following is the best rationale? - Correct Answer Both managers want the
smallest allocated cost" "Human Resources' costs are allocated based upon total number of employees, administration costs are allocated based upon number of units sold, utilities costs are allocated based upon square feet and supplies are allocated based upon number of hours. Using the direct method, what are the total costs
allocated to department B? - Correct Answer $418,843"
"HCL Chemicals produces two chemicals, HC &HL. Certain ingredients are shared by both products these are combined at the beginning of production. A batch of 100 gallons of pre-mix is split - 40 gallons to the
Since total depreciation charge does not change in relation to the number of customers that buy food at a particular stand, it is a fixed cost." "At a production and sales level of 3,000 units, Bastion Company incurred $60,000 of fixed cost and $36,000 of variable cost. When 4,000 units of product are produced and sold the company's cost per
unit is: - Correct Answer $27"
"Use the following data to answer the next two questions: Factory overhead is estimated to be $40,000 and is applied based on direct labor dollars. This overhead cost is not traceable to any particular product.
Factory overhead allocated to Product 2 is - Correct Answer $13,333"
"The total cost of Product 1 is - Correct Answer $65,000"
"Based on the behavior shown in the following table, which of the following is a variable cost? - Correct
Answer When volume increases variable cost per unit remains constant. Since the per unit cost of
materials remains constant regardless of the number of units produced, it is a variable cost. Also, when volume increases total variable cost increases. Since the total labor cost does not increase in proportion to the increase in number of units produced it is a mixed cost." "Fran Company is currently operating profitably. The company has a fixed cost structure. Based on this
information which of the following statements is true? - Correct Answer If volume increases by 20%,
profitability will increase by more than 20%. Since total fixed costs do not change as volume increases, they act as a lever that causes small changes in revenue to have disproportionate effects on net income. A small percentage increase in revenue will cause a larger percentage increase in net income. A small percentage decrease in revenue will cause a larger percentage decrease net income. This phenomenon is called operating leverage. Since Fran Company has a fixed cost structure, it has operating leverage and a 20% percentage increase revenue results in a greater than 20% percentage increase in net income."
"Which of the following statement is true? - Correct Answer A company that has only variable cost
cannot benefit from operating leverage Operating leverage is the result of fixed cost behavior. It can have negative consequences as well as positive. It is not affected by variable cost." "Tutor, Inc. (TI) provides instructional services to its customers. TI charges $200 per student. The Company expects to serve 500 students during the coming year. All of the Company's expenses are fixed. Total annual fixed cost are projected to be $60,000. If the estimated number of students increase
by 10%, net income will increase by: - Correct Answer 25%
Note that operating leverage magnifies the impact that changes in volume have on revenue and net income. In this case, a 10% increase in units sold results in a 25% increase in net income. Supporting computations are shown below." "Tutor, Inc. (TI) provides instructional services to its customers. TI charges $200 per student. The Company expects to serve 500 students during the coming year. All of the Company's expenses are fixed. Total annual fixed cost are projected to be $60,000. If the estimated number of students
decreases by 10%, net income will - Correct Answer decrease by 25%.
Note that operating leverage magnifies the impact of decreases as well as increases in volume. In this case, a 10% decrease in units sold results in a 25% decrease in net income. Supporting computations are shown below." "Elegant Dogs and Dazzling Dogs are competing canine grooming salons. Each company currently serves 4,500 customers per year. Both companies charge $35 to groom a dog. Elegant Dogs pays its dog groomers fixed salaries. Salary expense totals $45,000 per year. Dazzling Dogs pays its groomers $10 per dog groomed. Elegant Dogs lures 2,000 customers from Dazzling Dogs by lowering its grooming price to
$25. Dazzling Dogs maintains its $35 price. Which of the following is true? - Correct Answer Dazzling
Dogs' profits will decrease by more than Elegant Dogs' profits will increase. Elegant Dogs: Before: Rev= (450035)= 157500 Cost= (45000) Contrib to profit = 112500 After: Rev= 650025= Cost = (45000) Contrib to profit = 117500 Dazzling Dogs: Before: Rev= (450035)= 157500 Cost= (450010)=(45000) Contrib to profit = 112500 After: Rev= 250035= Cost = 250010=(45000) Contrib to profit = 62500 As shown above Elegant Dogs is able to increase its profitability by drawing customers away from Dazzling Dogs. Since Elegant Dogs has a fixed cost structure, revenue increases while costs remain constant. Therefore, net income increases disproportionately. In contrast because Dazzling Dogs has a
When the number of units sold changes, revenue and variable costs change proportionately. As a result, when the number of units sold increases, a variable cost structure produces a proportionate percentage change in revenue and net income. In contrast, when cost are fixed and the number of units sold increases, revenue increases but costs do not. As a result, a percentage change in number of units sold provides a disproportionate percentage change in net income. Fixed cost enable operating leverage. The period versus product costs classification issue is not directly related to operating leverage."
"As compared to companies with low operating leverage, companies with high operating leverage have -
Correct Answer more opportunity and more risk.
Operating leverage causes a disproportionate change in net income relative to a change in revenue. More specifically, a small percentage decrease in revenue will cause a larger percentage decrease in net income. A small percentage increase in revenue will cause a larger percentage change in net income. The higher the level of operating leverage, the more dramatic effect. So companies with high operating leverage can produce a dramatic change in net income from a relatively small change in revenue. This leveraged effect results in more opportunity to increase profitability. However, a small decrease in revenue can produce a dramatic decrease in net income. As a result, highly leveraged companies have more opportunity and greater risk than companies that a have lower operating leverage."
"The magnitude of operating leverage can be determined by which of the following formulas? - Correct
Answer =CM/Net Inc"
"The following information was drawn from the records of Calico Company. Based on this information
the magnitude of operating leverage is approximately (round to nearest hundredth): - Correct Answer
Revenue - Variable Cost = Contribution Margin $150,000 − $75,000 − $5,000 = $70, Magnitude of Operating Leverage: Contribution Margin ÷ Net Income $70,000 ÷ $61,000 = 1.15 times." "At a sales level of $270,000, the magnitude of operating leverage for Donuts Unlimited is 2.8. If number
of units sold increase by 15%, profits will increase by: - Correct Answer 42%
%Increase in Net Income = %Increase in Revenue × Magnitude of Operating Leverage %Increase in Net Income = 15% × 2.8 = 42%" "Omega Company has sales of $300,000 and cost of goods sold of $200,000. The cost of goods sold is a variable cost. The Company incurred $20,000 of fixed operating expenses and $40,000 of variable
operating expenses. Based on this information a 10% increase in revenue will produce a - Correct
Answer 15% change in net income
Magnitude of Operating Leverage: Contribution Margin ÷ Net Income: $60,000 ÷ $40,000 = 1.5 times % Increase in Net Income = % Increase in Revenue × Magnitude of Operating Leverage % Increase in Net Income = 10% × 1.5 = 15%" "Handy Hiking produces backpacks. In the previous year, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 4,000 backpacks at a total cost of $110,000. In January, it produced 2,500 backpacks at a total cost of $87,500. Using the high/low
method, the average variable cost per of producing a backpack was: - Correct Answer $
Variable cost per unit = Change in total cost ÷ Change in total volume Variable cost per unit = (110,000 − 87,500) ÷ (4,000 − 2,500) = $15" "The Human Resources' costs total $162,800. What is the amount of Human Resources' costs allocated
to department C if the number of part time employees is used as the allocation base? - Correct Answer
"If overhead is allocated based upon direct labor hours, what is the total cost per unit? - Correct
Answer $148.40"
"HCL Chemicals produces three products: HC, HL & CL. The raw materials cost equal $30,000 and processing cost total $24,000. At the split-off point, 1,500 gallons of HC is produced and sells for $20,000. 4,000 gallons of HL and 500 gallons of CL are also produced but cannot be sold without further processing. Additional processing will cost $9,000. The HL is for $60,000, and the CL is sold for
$5,000.What is the margin for Product HL? - Correct Answer $16,000"
"Which of the following statements regarding scatter graphs is true? - Correct Answer Scatter graph
analysis may rely on visual judgment to draw a line that follows a linear path through the plotted points in a data set. Scatter graph analysis may be used to assess the accuracy of the high/low method of estimating fixed and variable costs. Scatter graph analysis may be used in conjunction with the high/low method, and regression analysis as means of estimating variable and fixed costs." "Para Company developed a data set that contained a measure of total cost at various levels of activity. Para then used regression analysis to determine the intercept an slope of a line running through the data set. Based on this information, which of the following statements is true regarding the estimates
related to the intercept and the slope. - Correct Answer The intercept represents the total fixed cost
and the slope represents the variable cost per unit."
"Which of the following statements is false? (all of them) - Correct Answer Explanation why they are
all false:
-Sales revenue (2,500 units × $40 per unit) $ 100, -Cost of goods sold (variable; 2,500 units × $16 per unit) (40,000) -Cost of goods sold (fixed) (8,000) -Gross margin 52, -Administrative salaries (12,000) -Depreciation (8,000) -Supplies (2,500 units × $4 per unit) (10,000) -Net income $ 22,
What amount was the company's contribution margin? - Correct Answer Contribution margin =
Revenues − Variable expenses Contribution margin = $100,000 − ($40,000 + $10,000) = $50, $50,000" "The following income statement is provided for Vargas, Inc. -Sales revenue (1,500 units × $19.00 per unit) $ 28, -Cost of goods sold (variable; 1,500 units × $9.00 per unit) (13,500) -Cost of goods sold (fixed) (3,000) -Gross margin 12, -Administrative salaries (5,000) -Depreciation (4,000) -Supplies (1,500 units × $1.00 per unit) (1,500) -Net income $ 1,
What is this company's magnitude of operating leverage? (Round your answer to 2 decimal places.) -
Correct Answer Contribution margin = Revenues − Variable expenses
Contribution margin = $28,500 − ($13,500 + $1,500) = $13, Magnitude of operating leverage = Contribution margin ÷ Net income Magnitude of operating leverage = $13,500 ÷ $1,500 = 9. 9.00" "Yankee Tours provide seven-day guided tours along the New England coast. The company pays its guides a total of $194,400 per year. The average cost of supplies, lodging, and food per customer is $540. The company expects a total of 900 customers during the period January through June, and a total of 2,700 customers from July through December. Yankee wants to earn $240 income per customer. For promotional reasons the company desires to charge the same price throughout the year. Based on this
information, what is the correct price per customer? (Round your answer to the nearest dollar.) -
Correct Answer Total costs for the year = Variable costs + Fixed costs
Total costs for the year = [(900 customers + 2,700 customers) × $540 per customer] + $194,400 = 3, customers × $540 per customer + $194,400 = $2,138, Average costs per customer = $2,138,400 ÷ 3,600 customers = $ Net income per customer = Price per customer − Average cost per customer $240 per customer = Price per customer − $594 per customer Price per customer = $240 per customer + $594 per customer = $834 per customer $834" "Which characteristic is true of the high-low method, the scattergraph method, and regression analysis?
- Correct Answer All methods use historic data to estimate variable and fixed costs." "Production during the current year for California Manufacturing, a producer of high security bank vaults, was at its highest point in the month of June when 80 units were produced at a total cost of $800,000. The lowest point in production was in January when only 20 units were produced at a cost of $440,000. The company is preparing a budget for the current year and needs to project expected fixed
cost for the budget year. Using the high-low method, the projected amount of fixed cost per month is: -
Correct Answer Variable cost per unit = Change in costs ÷ Change in activity
Variable cost per unit = ($800,000 − $440,000) ÷ (80 units − 20 units) = $6,000 per unit Total cost = Variable cost + Fixed cost Fixed cost = Total cost − Variable cost Fixed cost = $800,000 − (80 units × $6,000 per unit) = $320, $320,000" "Which of the following statements concerning cost estimation models is incorrect? A. Cost estimation models are not typically considered valid for activity levels that fall outside of the relevant range of operations. B. The managerial judgment method of determining cost behavior requires extensive knowledge of the company's operations. C. The equation derived using the high low method considers the lowest and highest values for the independent variable. D. Regression analysis is the least accurate method used to develop cost estimation models. Yorrect.E.uranswer is co
The scattergraph method is advantageous because decision makers are able to easily identify outliers. -
Correct Answer "
"Ch 6 - Correct Answer "
"If the data points fall in a pattern that closely resembles a line, there is a ________ correlation between
the costs and cost driver - Correct Answer strong"
"If the data points fall in a pattern that does not costly resemble a line, there is a ______ correlation
between the costs and the cost driver - Correct Answer weak"
"the scatterplot helps managers easily identify - Correct Answer outliers"
"an abnormal data point - Correct Answer outlier"
"Outliers should be_______, but not included in the data set used to develop a cost behavior formula -
Correct Answer analyzed"
"Once a strong correlation is established between the costs and the cost driver and outliers have been
identified and removed, managers use the scatterplot to develop a _______ - Correct Answer cost
behavior formula" "A lin is visually placed on the data points. Once the line is placed, the _______ and _______ are
determined - Correct Answer fixed costs (y intercept) ; unit variable cost (slope)"
"This method is _____ due to the visual placement of the line on the data points - Correct Answer
subjunctive" "the high low method is more ________ than the first tow methods but since it only uses two data
points, it is not as ______ as the last method we discussed - Correct Answer objective; accurate"
"a statistical procedure used to determine the cost behavior formula - the most accurate and objective
method available to predict cost behavior - Correct Answer regression analysis"
"regression is simple to complete using available __________ - Correct Answer spreadsheet
technology"
"3 pieces of info we will use found in the output: - Correct Answer Intercept coefficient, X Variable 1
coefficient, R-squared value"
"represents the fixed costs (y-intercept) - Correct Answer intercept coefficient"
"represents the unit variable cost (slope) - Correct Answer x variable 1 coefficient"
""goodies of fit" measures - Correct Answer R-squared"
"the range of R squared value is between - Correct Answer 0 and 1"
"If R-squared is close to 0, the the cost driver used in the analyses - Correct Answer does not fit the
date and should not be used to predict the costs"
"If R - squared is close to 1, then the cost driver used in the analysis - Correct Answer does fit the data
and should be used to predict the costs"
"How costs/ respond to changes in activity level - Correct Answer cost behavior"
"Range over which formal is valid - Correct Answer relevant range"
"Advantages of account analysis - Correct Answer a person is involved... bring info about the mkt,
customers, and suppliers "to the table" that isn't "known" by a computer"
"Disadvantages of account analysis - Correct Answer subjective (since equation based on judgment)
not just anyone should use ( should be someone with an interactive working knowledge of company)"
"Advantage of scatter plot - Correct Answer provides a picture (this shows if there is linear relationship
between x and y AND shows if a potential outlier)"
"disadvantages of scatter plot - Correct Answer subjective (since placement of the line of best fit could
vary)"
"advantages of high low method - Correct Answer based on 2 actual data points, objective ( formula
developed based on rules)"
"disadvantages of high low method - Correct Answer possible that one of the 2 data points used could
be an outlier (why it would be important to graph the data points first before running the high low method)"
"advantages of regression analysis - Correct Answer uses all data points, objective, statistical measure
(R-squared) tells us if a linear relationship exists between x and y and if potential outlier exists"
"disadvantages of regression analysis - Correct Answer output is hard to read, possible that an outlier
could be part of the data set (why it is important to look at R-squared)"
"Which of the following cost behaviors does not change in total? - Correct Answer fixed"
"he relevant range is defined as the range of activity over which a cost behavior formula is considered valid. True/
False - Correct Answer True"
- the amount available to cover fixed costs and provide operating income" "This amount tells mangers the excess of the sales price over the unit variable cost and the amount from
every unit sale available to cover fixed costs and provide operating income - Correct Answer CM per
unit" "Once all fixed costs are covered, additional unit sales will increase operating income by an amount
equal to the ________ - Correct Answer unit cm"
"The unit CM is also used to predict - Correct Answer the unit sales needed to achieve a given
operating income" "tells mangers the amount from each sales dollar the is available to cover fixed costs and provide
operating income - Correct Answer CM ration/ percentage"
"Calculated 2 ways: - Correct Answer 1) by dividing total CM by sales revenue
- by dividing unit CM by sales price"
"Managers use the CM ratio to predict - Correct Answer the sales revenues need to achieve a given
operating income"
"The sales volume at which all costs are completely covered and an operating income of $0 is achieved -
Correct Answer break-even point"
"The sales volume at which al costs are completely covered an operating income greater than $0 is
achieved - Correct Answer target profit point"
"Managers use one of the three methods to determine break-even and target profit - Correct Answer
income statement approach, the unit approach, and the CM ratio approach" "based on the contribution margin income statement format: (sales price x number of units)- (unit VC x
number of units) -FC= opy - Correct Answer income statement approach - to calculate break even or
target profit, plug in the "knowns" and solve for the "unknowns"" "This shortcut approach is derived using the contribution margin income statement but isolates number
of units: - Correct Answer number of units= (FC + copy) / (SP-unit VC) - to calculate break even or
target profit, plug in the "knowns" and solver for the "unknowns"" "This shortcut approach is also derived using the contribution margin income statement but isolates
sales revenue instead of units: - Correct Answer sales revenue= (FC + copy)/ CM%"
"CVP analysis helps to address "what if" questions, such as "what if we change the sales price?", what if
the change variable costs?" and "what if we change fixed cost?" this is referred to as - Correct Answer
sensitivity analysis" "If the sales price decreases,
the variable cost per unit increases or the total fixed costs increase, the break even point will_____ -
Correct Answer increase"
"If either thee sales pice increases, the variable cost per unit decreases, or the total fixed costs decrease,
the break even point will___ - Correct Answer decrease"
"the relative proportion of products sold by a company and is determined by the market-- companies
that sell more than one product have to consider this when performing CVP analysis - Correct Answer
sales mix" "We will use the unit approach to perform CVP analysis for a multi product company. To perform this
analysis, we will use 5 steps: - Correct Answer 1. Find the unit CM for each produced offered by the
company
- determine the sales mix
- calculate the weighted average CM per unit
- apply the unit formula using the weighted average CM per unit
- Split the answer apart into separate products using the sales mix"
"if a company has more fixed costs than variable costs, it is said to operate with - Correct Answer high
operating leverage" "for companies with high operating leverage, changes in _________ significantly affect operating income
because the _______ is high - Correct Answer sales volume; unit contribution margin"
"Is this cost structure risky for companies? - Correct Answer yes because they have a lot to lose in bad
economic times; however, they have a lot to gain in good economic times"
"If a company has less fixed costs than variable costs, it is said to operate with - Correct Answer low
operating leverage" "for companies with low operating leverage, changes in sales volume ____ significantly affect operating
income because the unit contribution margin is -___ - Correct Answer do not; high"
"CVP analysis relies on our knowledge of cost function to express relationships among costs, sales
volume, and profit. - Correct Answer F- behavior"
"Who determines a company's sales mix? - Correct Answer customers"
"Which of the following statements is true regarding the indifference point calculation? A. If sales volume is expected to be higher than the indifferent point, management should choose the cost structure with higher fixed costs. B. If sales volume is expected to be higher than the indifferent point, management should choose the cost
structure with higher variable costs. - Correct Answer A"
"A contribution margin income statement - Correct Answer provides behavioral information about the
company's operating results."
"Ch 8 - Correct Answer "
"Which of the following would occur if a company experienced a decrease in unit variable costs? -
Correct Answer the contribution margin will increase"
"How should we approach decisions that pertain to a short period of time? - Correct Answer with the
knowledge that all current decisions ultimately affect the company's long term operations and market position" "When making decisions mangers should focus on ________ - this is info that pertains to the future and
differs between the available alternatives - Correct Answer relevant information"
"In addition to considering relevant quantitative information, mangers should also consider _________ -
Correct Answer relevant qualitative information - questions such as "How will this decision affect
employee morale?" and "How will this decision affect the company's relationship with existing customers?"" "managers use an _________ to make short term decisions - this approach analyzes variable costs and
fixed costs separately using the contribution margin approach - Correct Answer incremental analysis"
"when the company receives a one time, large volume order from a customer at a reduced sales prime -
Correct Answer special order decisions"
"To determine if the decision should be accepted, the manager must consider three questions: -
Correct Answer 1) Is there sufficient excess capacity to fill this special order? - if not and they accept
they give up regular sales
- is the special unit CM positive? Is the total special CM greater than any additional fixed costs generate by accepting the special order?
- Will accepting the special order affect regular sales in the long run?"
"the difference between full capacity and the companys current operations - Correct Answer excess
capacity"
"When performing incremental analysis for special orders, mangers must consider: - Correct Answer
reduced sales price, any change in the unit variable cost, and any change in the fixed costs"
"In making regular price decisions managers must consider two questions: - Correct Answer 1) What is
the company's target profit?
- How much control does the company have over pricing?" "target profit is calculated as a ________ - it represents the return expected by a company's
shareholders - Correct Answer company's total assets"
"If a company is in a highly competitive market and is not recognized brand name, it does not control
the price charge to its regular customers, it is said to be a - Correct Answer price taker"
"To achieve a given target profit, management uses - Correct Answer target costing"
"If a company has fe competitors and is recognized brand name, it has control over the price charged to
its regular customers it is said to be - Correct Answer price setter"
"to achieve a give target profit, management uses - Correct Answer cost plus pricing"
"If an segment, or part, of a company is not as profitable as desired, mangers must decide whether -
Correct Answer to continue operating the segment"
"In making keep/ drop decisions mangers must consider four questions: - Correct Answer 1. does the
segment provide a positive contribution margin?
- If the segment is discontinued, are there an fixed costs that can be avoided?
- Will sales related to other products be affected if a particular segment is dropped?
- What can be done with the freed up capacity?"
"if a fixed cost will not be incurred if a segment is dropped, the cost is considered also known as -
Correct Answer avoidable - direct or traceable fixed costs"
