In Deciding Whether to Drop or Keep a Product Line

question 54

Multiple Choice

In deciding whether to drop or keep a product line, all the following are relevant to the decision except:

• A) The level of unavoidable fixed costs.
• B) The segment margin generated by the product line.
• C) Demand interdependencies across product lines of the company.
• D) Effect of the decision on overall company morale.
• E) Whether dropping the product line today would eliminate future options for growth and expansion.

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Definitions:

Traditional Costing

A costing methodology that assigns overhead costs to products based on a predetermined rate, often using direct labor hours as the allocation base.

Activity-Based Costing

Activity-Based Costing is a method of allocating overhead to specific products or services based on the activities that contribute to overhead costs.

Overhead Cost

The ongoing, general business expenses not directly tied to producing goods or services but necessary for running the business.

Traditional Costing

A costing method that assigns factory overhead to products based on volume-related measures such as direct labor hours or machine hours.