Final answer:
Eliminating an unprofitable segment does not necessarily increase net income as not all costs may cease, especially fixed costs. A thorough cost-revenue analysis and consideration of market effects is essential before discontinuing a segment.
Step-by-step explanation:
The net income will increase by eliminating an unprofitable segment is B. false. Not all costs associated with the segment may be eliminated when the segment is discontinued. Specifically, if the segment has any fixed costs that won't cease with the discontinuation of the segment, then these costs would spread over the remaining segments, potentially reducing the overall net income.
When management is considering shutting down an unprofitable segment, they must conduct a thorough analysis of all costs and revenues associated with that segment. Directly attributable revenues and variable costs will cease when the segment is stopped, but fixed costs need to be carefully evaluated. These could be things like facility rents, utilities, or salaried employees, which may continue even after the segment is closed.
Furthermore, eliminating an unprofitable segment might also affect the sales of other segments due to loss of bundled sales or brand image impact. Thus, while it might appear straightforward to assume that discontinuing an unprofitable segment would always result in an increase in net income, the actual impact on the company's financials must be examined in the context of the full cost structure and market effects.