If a Company Is Making a Decision That Involves Discontinuing

question 10

True/False

If a company is making a decision that involves discontinuing a product, the "avoidable" costs associated with that product would be relevant costs in the decision.

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Definitions:

Fixed Costs

Costs that do not change with the level of production or sales activities, such as rent, salaries, and insurance premiums.

Variable Manufacturing Overhead

Costs that vary with production volume, such as utilities and materials, which are only incurred as a result of manufacturing activities.

Direct Materials

Raw materials that are directly traceable to the production of specific goods or services.

Contribution Margin

The amount by which sales revenue exceeds variable costs, contributing to covering fixed costs and generating profit.