Final answer:
Common fixed costs are considered sunk costs and should be ignored when deciding to drop a product line, as they cannot be recovered and do not change with production levels.
Step-by-step explanation:
The statement that common fixed costs should be ignored when deciding whether to drop a product line or segment is true. This is because common fixed costs are considered sunk costs, which are costs that have already been incurred and cannot be recovered. When making decisions about the future of a product line, it's important to focus on costs that can be affected by the decision at hand, notably variable costs and not common fixed costs.
Fixed costs, such as rent for a factory, do not vary with the level of production and are often sunk in the short run. For a business, the primary consideration is whether the total revenue exceeds variable costs and contributes sufficiently to fixed costs to justify keeping the product line. Hence, when determining the future of a product line, variable costs provide essential information about the firm's ability to cut costs and the impact on profits if the product line is kept or dropped.