When considering whether to drop a product line, businesses often look at various financial metrics and costs associated with that product. Allocated common fixed costs refer to fixed expenses that are distributed across multiple products or departments. However, their relevance in decision-making can vary.
Answer: Responses a, b, and c are all correct.
Explanation: Allocated common fixed costs can be misleading in the context of decision-making about product lines. First, they are generally not relevant because these costs will continue to exist regardless of whether a specific product line is maintained or dropped (Response a). Secondly, these costs can distort the perceived profitability of a product line, making it appear less profitable than it actually is if these costs are improperly considered (Response b). Thus, when making decisions like dropping a product line, it’s vital to focus on variable costs and avoid letting allocated fixed costs influence the assessment of profitability. Therefore, acknowledging that responses a, b, and c are all correct captures the complexity around how such costs might impact decision-making.