Final answer:
Common fixed costs should not be allocated between divisions when deciding whether or not a division should be discontinued.
Explanation:
a) True
Common fixed costs should not be allocated between divisions when deciding whether or not a division should be discontinued. The rationale behind this is grounded in the principle of avoiding arbitrary or misleading cost allocations. Common fixed costs are incurred for the organization as a whole and are not directly attributable to any specific division. When considering the discontinuation of a division, decision-makers should focus on the division's direct costs and the contribution margin, rather than allocating common fixed costs that are not controllable by the division manager. By excluding common fixed costs from the decision-making process, organizations can make more informed choices about the viability of individual divisions, ensuring that decisions are based on relevant and controllable factors, leading to more accurate assessments of divisional performance and overall organizational profitability. Common fixed costs should not be allocated between divisions when deciding whether or not a division should be discontinued. Common fixed costs are costs that are shared by multiple divisions or departments within a company and cannot be directly traced to any specific division.
When deciding whether to discontinue a division, it is important to consider the division's direct costs and its contribution margin (revenue minus variable costs). Common fixed costs are not relevant in this decision because they would not change whether the division continues or not.