Question

A company is trying to decide whether to keep or drop the organic foods department in its grocery store. If organic foods are dropped, the manager will be laid off. What is the manager's salary in relation to the decision to keep or drop the department?

Answer 1

Answer:

Here is the questions with options

A company is trying to decide whether to keep or drop the organic foods department in its grocery store. If organic foods are dropped, the manager will be laid off. What is the manager's salary in relation to the decision to keep or drop the department?

A. A variable cost and therefore relevant  

B. Avoidable and therefore incremental  

C. Sunk and therefore not relevant  

D. A fixed cost and therefore not relevant

The answer is B. Avoidable and therefore incremental

Explanation:

An avoidable cost are cost that can be eliminated when a particular activity is no longer performed.  They are variable cost that can be eliminated from the business operation by not  producing a particular goods.

On the other hand, an incremental cost is the difference in total costs as the result of a change in some activity.

If the company decides to dropped the organic department, the payment made  to the manager is automatically eliminated, Thus making such cost become an avoidable cost,  because it can be eliminated.  

Hence the best answer is B. Avoidable and therefore incremental