تقييمات الطلاب
( 5 من 5 )
١ تقييمات
فيديو شرح Decision for Add or Drop Product or Division. Cost Accounting Course. CPA Exam BAR. CMA Exam ضمن كورس محاسبة التكاليف شرح قناة Farhat Lectures. The # 1 CPA & Accounting Courses، الفديو رقم 36 مجانى معتمد اونلاين
How do you decide whether to keep or drop a product line or division? In this cost accounting lesson for CPA BAR and CMA candidates, Professor Farhat explains the keep-or-drop decision using relevant and avoidable costs — comparing the contribution margin lost against the avoidable fixed costs, and showing why allocated fixed costs that remain can make a losing division worth keeping. Includes worked examples and qualitative factors.
Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students.
Video Timeline & Key Concepts:
0:00 — Introduction
0:56 — Contribution margin analysis of a division
1:37 — Avoidable vs allocated fixed costs
1:51 — Decision rule for keeping or dropping
2:37 — Example: Cube Manufacturing product lines
6:49 — Example: dropping an airline route
9:37 — Qualitative and strategic considerations
Frequently Asked Questions:
How do you decide whether to drop a product or division?
You compare the contribution margin that would be lost by dropping the segment to the fixed costs that could actually be avoided. The decision should be based on relevant and avoidable costs, not on the segment’s reported overall profit or loss.
What is the difference between avoidable and allocated fixed costs?
Avoidable fixed costs disappear if the division is dropped, while allocated fixed costs remain and are simply shifted to other segments. Only avoidable costs are relevant to the keep-or-drop decision.
What is the decision rule for keeping a division?
Keep the division when the contribution margin that would be lost is greater than the avoidable fixed costs, and drop it only when the lost contribution margin is less than the avoidable fixed costs. This ensures the decision improves overall company profit.
Why might a company keep a division that shows a loss?
If much of the division’s fixed cost is allocated and would remain after closure, dropping it eliminates the contribution margin without removing those costs. Keeping the division can leave the company better off overall.
What qualitative factors matter in keep-or-drop decisions?
Beyond the numbers, management should weigh factors such as effects on other product lines, customer relationships, employee morale, and long-term strategy. These considerations can outweigh a short-term financial result.
#CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses #BAR #relevantcosts #keepordrop #costaccounting #ProfessorFarhat #accountingstudents