When Deciding Whether to Replace a Product, Service, or Department

question 130

Multiple Choice

When deciding whether to replace a product, service, or department, managers should choose the alternative that has:

• A) the greatest contribution margin
• B) the greatest contribution to pay unavoidable costs
• C) the highest avoidable costs
• D) the lowest overall cost

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Definitions:

Administrative Expenses

Expenses that are not directly tied to a specific function such as manufacturing, production, or sales, but necessary for the overall day-to-day operations of a company.

Product Costs

Costs that are directly incurred in the production of goods or services, including direct materials, direct labor, and manufacturing overhead.

Period Costs

Expenses that are not directly tied to production activities and are expensed in the period they are incurred, such as administrative salaries and marketing costs.

Variable Costs

Costs that vary directly with the level of production or volume of output, such as materials and labor directly involved in production.