A branch office or business segment that shows negative operating income should be shut down.” Do...

A branch office or business segment that shows negative operating income should be shut down.” Do you agree?

Expert Solution

No .

A branch office or business segment that shows negative operating income may be shutdown or may not be shutdown. Decision will be based on cost analysis. Just because operating result is negative shut down may not be correct decision without further analysis and shutdown may reduce the overall profitability of the company. Decision should be based on contribution analysis.When a company can earn a positive contribution margin, it should remain in operations despite an overall marginal loss.Shutdown points are based entirely on determining at what point the marginal costs associated with operation exceed the revenue being generated by those operations.

For example, if the revenues that will be lost exceed the costs that will be saved, the branch or business segment should not be shut down. Shutting down will only increase the loss. Allocated costs and fixed costs that will not be saved are irrelevant to the shut-down decision.

ekkarill92 answered 1 year ago

In pure competition, how do you determine the following: a. If the firm should shut down...

In pure competition, how do you determine the following: a. If the firm should shut down in the short-run. b. The level of output that a firm should produce. c. Whether the firm is incurring losses or earning profits?

18. A firm should shut down in the short run if:

18. A firm should shut down in the short run if: a. price is greater than average variable costs b. average fixed costs are greater than marginal revenue c. price is less than average variable costs d. total costs are greater than fixed costs 19. A firm is said to be making profits when: a. marginal revenue exceeds marginal costs. b. marginal revenue exceeds variable costs. c. average revenue exceeds average total...

In a perfectly competitive industry how might a firm earning negative profits not shut down?

Should the firm shut down in the short-run? Explain in detail why or why not.

1. Which of the following is considered a negative supply shock? Select one: a. Government-mandated shut-down...

1. Which of the following is considered a negative supply shock? Select one: a. Government-mandated shut-down of the retail sector to prevent a spread of a virus b. A decline in wages c. An unexpected large increase in the government bond yields d. An improvement in video-conferencing technology 2. An Australian firm produces software in the UK, its market value will be included in Select one: a. Australia’s GDP. b. neither Australia’s nor UK’s GDP as it is counted towards...

A profit-maximizing firm in monopolistic competition should shut down in the short run if: a. price...

A profit-maximizing firm in monopolistic competition should shut down in the short run if: a. price is more than average total cost. b. price is less than average variable cost. c. marginal revenue is equal to marginal cost. d. marginal revenue is less than price. e. price is less than average fixed cost. The term “strategy” in terms of game theory refers to: a. the tendency for collusive firms to generate normal profits. b. each firm’s decision to charge a...

How do you evaluate an operating segment or project using residual income and economic value added?

The Home Office ships merchandise to its branch at 20% above cost. The branch’s book shows...

The Home Office ships merchandise to its branch at 20% above cost. The branch’s book shows a beginning inventory of P135,000 (50% from outside purchase) and shipments from home office of P405,000. The ending inventory of the Branch amounted to P337,500 in which 60% is home office merchandise while the remaining balance is from outside purchases. The Branch purchased merchandise costing P317,500. The total sales and operating costs of the branch for the year amounted to P1,040,000 and P220,000 respectively....

In the short run, under what conditions should the firm shut down? average total cost at...

In the short run, under what conditions should the firm shut down? average total cost at the minimum point price greater than average variable cost price less than average variable cost marginal revenue greater than marginal cost marginal revenue greater than average total cost

A profit-maximizing firm should shut down in the short run if: Answer choices: price is greater...

A profit-maximizing firm should shut down in the short run if: Answer choices: price is greater than marginal cost. total revenue is less than total variable cost. the firm is earning less than a normal rate of return. the firm is not able to cover its overhead expenses. marginal cost is higher than average cost.

Question