Question

Discontinuing a product or segment is a huge decision that must be carefully analyzed. Which of the following would be a valid reason not to discontinue an operation?
a. variable costs are more than revenues
b. allocated fixed costs are more than revenues
c. losses are minimal
d. variable costs are less than revenues

Answer 1

Answer:

d. variable costs are less than revenues

Explanation:

If the revenues of a company are more than the variable costs, it means the business is covering its variable costs and have additional revenues to meet its fixed costs. The success of a business depends on the outcomes of its revenues and output. A company output must meet demand and generate revenue.

Revenues that are higher than variable costs result in profitability. If the output is huge, the business will cover variable and fixed costs and make profits.  Should the revenues fail to meet variable cost, the operation is headed for a shutdown.