All of the Following Are Considerations for Discontinuing a Product

question 27

Multiple Choice

All of the following are considerations for discontinuing a product or product line, except

• A)whether the product has a positive or negative contribution margin.
• B)not having any free capacity.
• C)if discontinuing the product or product line will affect sales of remaining products.
• D)determining if direct fixed costs could be avoided if the product or product line is discontinued.

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Definitions:

Business Risk

The exposure a company or investor faces due to uncertainties in profits or dangers in its industry or economy.

Equity Risk

The risk of loss due to a drop in the value of stocks or equity securities.

Operating Activities

Activities directly related to the day-to-day operations of a business, such as sales, purchasing inventory, and paying salaries.

Static Theory of Capital Structure

A concept in corporate finance that suggests a firm can find an optimal capital structure, balancing the benefits and costs of debt and equity financing.