ECONOMICS

Detailed explanation-1: -When a department or product line is dropped, the common fixed costs which had been allocated to that department are allocated to the remaining departments or product lines. A two-stage system first allocates costs to: A) products or services and then allocates costs to departments or activities.

Detailed explanation-2: -Direct costs are expenses that a company can easily connect to a specific “cost object, ” which may be a product, department or project. This category can include software, equipment and raw materials. It can also include labor, assuming the labor is specific to the product, department or project.

Detailed explanation-3: -Indirect costs are the overhead costs or costs that are not directly tied to the production of a product or service.

Detailed explanation-4: -6. Which of the following principles should be followed by making a decision to drop a product/line? a) Product yielding lowest contribution should be given top priority in production programme.