A Company Is Trying to Decide Whether to Keep or Drop

question 52

Multiple Choice

A company is trying to decide whether to keep or drop the organic foods department in its grocery store.If organic foods are dropped, the manager will be laid off.What is the manager's salary in relation to the decision to keep or drop the department?

• A)An opportunity cost and therefore relevant
• B)Avoidable and therefore incremental
• C)Sunk and therefore not relevant
• D)The same for all alternatives and therefore not relevant

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Definitions:

Equipment Cost

The total amount spent to acquire, install, and prepare equipment for its intended use, including purchase price and associated expenses.

Periodic Depreciation

The allocation of the cost of a tangible asset over its useful life in a periodic manner, typically done for accounting and tax purposes.

Plant Assets

Long-term tangible assets that are used in the production of goods or services, such as buildings, machinery, and equipment.

Salvage Value

The estimated residual value of an asset at the end of its useful life, reflecting what it could be sold for or scrapped.