CAF-5 · Chapter 15 · Question 3 of 10
According to short-term decision-making principles, under what specific circumstance should a company shut down a product line or a department?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) If the specific, directly attributable fixed costs saved by closing the department exceed the lost contribution margin.
Explanation
The text states that a product or department should be withdrawn if the savings from closure exceed the benefits of continuing. Therefore, if the avoidable fixed costs saved are greater than the contribution margin that will be lost, the department should be shut down.
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