Calgary Corporation Is Closing One of Its Divisions $$\begin{array} { l r } \text { Sales } & \$ 80,000 \\\text { Variable costs } & 40,000 \\\text { Overhead } & 40,000\end{array}$$

question 45

Multiple Choice

Calgary Corporation is closing one of its divisions. Operating data on this division follows: $$\begin{array} { l r } \text { Sales } & \$ 80,000 \\\text { Variable costs } & 40,000 \\\text { Overhead } & 40,000\end{array}$$ Overhead consists of $30,000 in salary and $10,000 for rent and insurance. The salary is for the chief engineer, who will continue to work for Calgary 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 irrelevant cost
• D) Avoidable and relevant cost

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Definitions:

Liabilities

Financial obligations or debts that a company owes to external parties, which must be settled over time through the transfer of economic benefits.

Deferral

Accounting method to postpone the recognition of revenues or expenses until a future accounting period.

Journal Entry

A record in the accounting ledger that represents a transaction and its effect on various accounts, used for tracking and organizing financial data.

Accrual

Accrual is an accounting method that records revenues and expenses when they are earned or incurred, regardless of when the cash transaction actually takes place.