When a Department or a Product Is Showing a Loss

question 73

True/False

When a department or a product is showing a loss after all costs have been traced and allocated, a company has no option but to make the decision to either close the department or drop the product.

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Definitions:

Straight-line Method

An accounting method of depreciation where an asset's cost is evenly spread over its useful life.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.

Capitalized

Recorded as an asset rather than an expense, allowing the cost to be expensed incrementally through depreciation or amortization.

Implicit Interest Rate

The interest rate in a lease or loan that is not explicitly stated but can be calculated by comparing the present value of the lease payments or loan repayments to the original amount financed.