Keep or drop a business segment. Lees Corp. is deciding whether to keep or drop a small segment of its business. Key information regarding the segment includes: Contribution margin: 35,000 Avoidable fixed costs: 30,000 Unavoidable fixed costs: 25,000 Given the information above, Lees should: Drop the segment because the contribution margin is less than total fixed costs. Drop the segment because avoidable fixed costs exceed unavoidable fixed costs. Keep the segment because the contribution margin exceeds avoidable fixed costs. Keep the segment because the contribution margin exceeds unavoidable fixed costs.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Keep or drop a business segment. Lees Corp. is deciding whether to keep or drop a small segment of its business. Key information regarding the segment includes:
Contribution margin: 35,000
Avoidable fixed costs: 30,000
Unavoidable fixed costs: 25,000
Given the information above, Lees should:
- Drop the segment because the contribution margin is less than total fixed costs.
- Drop the segment because avoidable fixed costs exceed unavoidable fixed costs.
- Keep the segment because the contribution margin exceeds avoidable fixed costs.
- Keep the segment because the contribution margin exceeds unavoidable fixed costs.
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