What happens if an unprofitable segment is eliminated? it is impossible for net income to decrease. variable expenses of the eliminated segment will be eliminated. it is impossible for net income to increase.
Which of the following are relevant in deciding whether to eliminate an unprofitable segment?
In deciding whether to eliminate an unprofitable segment or product, the relevant costs are the variable costs that drive the contribution margin, if any, produced by the segment or product. Disposition of the segment’s or the product’s fixed expenses and opportunity cost must also be considered.
What is a cost that Cannot be changed by any present or future decision called?
Irrelevant costs are those that will not change in the future when you make one decision versus another. Examples of irrelevant costs are sunk costs, committed costs, or overheads as these cannot be avoided.
Under what situations should the company accept a special order for less than the current selling price?
Under what situations should the company accept a special order for less than the current selling price? Never. When the company thinks it can use the cheaper materials without the customer’s knowledge. When incremental revenues exceed incremental costs.
When conducting an incremental analysis How do the costs of past repairs and future repairs impact the retain or replace decision?
When conducting an incremental analysis, how do the costs of past repairs and future repairs impact the retain-or-replace decision? A : The cost of past repairs is irrelevant because they are sunk costs, but the cost of future repairs is relevant because they impact anticipated net income.
What is the rule for whether to sell or process materials further?
The decision rule for whether to sell or process materials further is: Process further as long as the incremental revenue from processing exceeds the incremental processing costs. Analyze the relevant costs to be considered in repairing, retaining, or replacing equipment.
