Question

The decision to drop a product line is based the following factors, except:

	a.	contribution margin lost is less than fixed costs avoided
	b.	contribution margin lost is greater than fixed costs avoided
	c.	decline in sales of the company's other products
	d.	loss of customers who purchase other products

In a make-or-buy decision, the relevant costs are typically?

	a.	costs of buying the product from the outside source
	b.	variable costs of making the product that can be avoided by buying it
	c.	any avoidable fixed costs, and opportunity costs incurred by forgoing production of another product
	d.	all are typically costs

Answer 1

1

When the contribution margin lost is greater than fixed costs avoided, the product should not be dropped.

A product with contribution margin greater than avoidable fixed costs is contribution positively to profit and should not be dropped.

Option B is correct

2

In a make-or-buy decision, the relevant costs are variable costs of making the product, buying the product, avoidable fixed costs, and any opportunity costs

Option D all are typically costs is correct