ACCA PM · Chapter 8 · Question 8 of 10
A division of a retail chain reports annual contribution of $30,000. Its fixed costs comprise $45,000 that would be avoided if it closed and $25,000 of head office costs that would continue regardless. If the division is closed, what will happen to the company's annual profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) It will increase by $15,000
Explanation
Closing the division loses $30,000 of contribution but saves $45,000 of avoidable fixed costs. Profit therefore rises by $45,000 - $30,000 = $15,000. The $25,000 of head office costs is unavoidable and irrelevant.
More Make or buy and other short-term decisions MCQs
- Q10A manufacturer is considering outsourcing the production of a key component to an overseas supplier at a lower cost. Which of the…
- Q1Which of the following best defines a relevant cost for decision-making?
- Q2A one-off contract requires 800 kg of material K. The company holds 500 kg of K in inventory, bought for $4.00 per kg. The current…
- Q3A one-off contract requires 800 kg of material K. The company holds 500 kg of K in inventory, bought for $4.00 per kg. The current…
- Q4A special order needs 200 hours of skilled labour. Skilled workers are paid $15 per hour and are fully employed making product Q, which…