When aksed if a company should drop a product, a segment or line of business, what is a key question that should first be asked? A. Consider only the sales revenue of the product in making the decision. B. Will any of the fixed costs go away? If yes, ignore them in the decision process. C. Consider only the operating income and loss of the product in making the decision. D. Will any of the fixed costs go away? If no, ignore them in the decision process.
Business · High School · Thu Jan 21 2021
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The key question that should be asked when considering whether a company should drop a product, segment, or line of business is:
D. Will any of the fixed costs go away? If no, ignore them in the decision process.
Understanding whether fixed costs associated with the product, segment or line of business will persist regardless of the decision to drop it is crucial. Fixed costs are those that do not vary with production levels or sales and remain constant. If fixed costs will not change, they should be considered in the decision-making process. It's important to assess the total impact on profitability, not just focusing on sales revenue or operating income but considering all relevant costs, both fixed and variable, associated with the product or segment in question.