Allocating Common Fixed Expenses to Business Segments

question 72

Multiple Choice

Allocating common fixed expenses to business segments:

• A) may cause managers to erroneously discontinue business segments.
• B) may cause managers to erroneously keep business segments that should be dropped.
• C) ensures that all costs are covered.
• D) helps managers make good decisions.

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Definitions:

Profit

The financial gain made in a transaction or operation, calculated as the difference between revenue and costs.

Marginal Cost Curve

A graphical representation showing how the cost of producing one more unit of a good varies as the quantity of output changes.

Short Run

A period in economics during which at least one input is fixed and cannot be changed by the company.

Supply Curve

A graphical representation showing the relationship between the price of a good and the amount of the good that producers are willing and able to supply.