Collage Ltd Is Closing One of Its Divisions $\begin{array} { l l } \text { Sales } & \$ 120,000 \\\text { Variable costs } & 46,000 \\\text { Overhead } & 60,000\end{array}$

question 109

Multiple Choice

Collage Ltd is closing one of its divisions. Operating data on this division follows:
$\begin{array} { l l } \text { Sales } & \$ 120,000 \\\text { Variable costs } & 46,000 \\\text { Overhead } & 60,000\end{array}$
Overhead consists of $50,000 in salary and $10,000 for rent and insurance. The salary is for the production manager, who will continue to work for Collage even if the division is closed.
Rent and insurance that will cease if the division is closed is an:

• A) Unavoidable and irrelevant cost
• B) Unavoidable and relevant cost
• C) Avoidable and relevant cost
• D) Avoidable and irrelevant cost

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Definitions:

Accountants

Professionals responsible for managing and auditing financial records, ensuring accuracy and compliance with legal requirements.

Short Run

Describes a period in which some factors of production or inputs are fixed, limiting the ability of a business to fully adjust to market changes.

Long Run

A period in which all factors of production and costs are variable, and firms can adjust all inputs.

Inputs Fixed

Refers to factors of production (like capital and land) that remain constant in quantity, regardless of the level of output.