Question

cost incurred on closing down a department is called as

1) abandonment cost
2) sunk cost
3) shutdown cost
4) shutdown cost ​

Answer 1

Answer:

shutdown cost

Explanation:

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Answer 2

Cost incurred on closing down a department is called as Shutdown Cost (option 3)

• Shutdown cost is incurred when the operations are temporarily or permanently shutdown.
• Generally when the average cost of business is more than the average revenue of the business, the business shuts down.
• A business has to shutdown when its average revenue does not cover its average variable costs.
• As per the Shutdown Rule, operation or a business must shut down only when the average revenue produced by the business is equal to or more than the amount of average variable cost.