Which of the following statements describes a scenario when management should consider dropping a business division? A. The division's avoidable fixed costs are greater than its contribution margin. B. The division's avoidable fixed costs are less than its contribution margin. C. The division's unavoidable fixed costs are greater than its operating loss. D. The division has been reporting an operating loss consistently.

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Business

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20 August, 03:11

Which of the following statements describes a scenario when management should consider dropping a business division? A. The division's avoidable fixed costs are greater than its contribution margin. B. The division's avoidable fixed costs are less than its contribution margin. C. The division's unavoidable fixed costs are greater than its operating loss. D. The division has been reporting an operating loss consistently.

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Answers (1)

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Ayana Henson · Answer 1

The correct answer would be option D, The division has been reporting an operating loss consistently.

Explanation:

A company will make profit only when the cost it incurred on the manufacturing of the product is less than the amount the sales of that product generates. So when a company opens a new division, it hopes to cover its expenses from the manufacturing of the product in that new division, but when consistently the division has been reporting the operating loss, then the company can think of dropping that business division, because company can bear new division expenses for an estimated period of time, but when the progress of the division is consistently down, the management can think of dropping off that division.