Question

Which of the following costs would continue to be incurred even if a segment is eliminated? A. Direct fixed expenses B. Variable cost of goods sold C. Common fixed costs D. Variable selling and administrative expenses

Answer 1

The correct answer is C. Common fixed costs.

Step-by-step explanation:

A fixed cost is an expense that the company must incur, even if the company operates at medium speed, or does not, which is why they are so important in the financial structure of any company.

This is the case, for example, of payments such as leasing, since this, if nothing is sold, must be paid. It also happens with almost all labor payments, public services, insurance, etc.

Perhaps the main component of fixed costs is labor, therefore, it is not surprising that companies struggle every day for greater labor flexibility that allows them to convert those fixed costs into variables.