Chapter 11, Problem 11.19MCQ

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:

1. a. Drop the segment because the contribution margin is less than total fixed costs.
2. b. Drop the segment because avoidable fixed costs exceed unavoidable fixed costs.
3. c. Keep the segment because the contribution margin exceeds avoidable fixed costs.
4. d. Keep the segment because the contribution margin exceeds unavoidable fixed costs.