question archive “A branch office or business segment that shows negative operating income should be shut down
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“A branch office or business segment that shows negative operating income should be shut down.” Do you agree? Explain briefly
Answer:
No. 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.