Question

Often, branches or divisions are allocated a share of corporate-office costs. If a branch or division is closed then:

		These costs may be allocated differently across different branches, therefore reducing the profitability of the entire organization
		These costs may be allocated differently but they may not actually change. Therefore, they are irrelevant
		These costs may be allocated differently across different branches, therefore increasing the profitability of the entire organization
		These costs may be allocated differently but they may not actually change. Therefore, they are relevant

Answer 1

The Correct Alternative is : These costs may be allocated differently but they may not actually change. Therefore, they are irrelevant

For Example: Let us assume that an organisation has 10 Branches apart from a Corporate Office. The corporate office costs are $100,000 per year. This $100,000 will be allocated to the 10 Branches either equally or as per the services offered by the corporate office to these branches.

Suppose, the company has to take a decision of closing one branch out of ten branches, in this case, the corporate office costs of $100,000 will be allocated either equally among these nine branches or as per the services offered by the corporate office to these branches.

This means that even if the branch has to be closed, the total corporate office cost will remain the same that is $100,000 and hence, this amount is irrelevant for decision making with reference to closing a particular branch.