Shelby is considering whether to drop a product line from her business. Some administrative costs are being allocated to the pro

Question

1 month ago

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Shelby is considering whether to drop a product line from her business. Some administrative costs are being allocated to the pro

duct line but will not change in total if Shelby decides to drop the product line. Which of the following statements are true regarding these costs? (Check all that apply.)
a. Administrative costs are always irrelevant.
b. The allocated administrative costs are irrelevant to Shelby's decision to drop the product line.
c. The administrative costs are allocated costs.
d. Administrative costs are always relevant.

Business

1 answer:

Mariulka [3.8K] · Answer 1 · 2026-04-07T23:12:39+03:00

D. Administrative costs are always pertinent. In the context where Shelby is weighing the decision to eliminate a product line, certain administrative costs are currently allocated to that product line but would remain unchanged in total regardless of her decision. Thus, administrative costs hold relevance. These costs encompass expenses not directly tied to specific departments like sales or manufacturing, representing expenses like employee salaries, IT, and accounting services that relate to the company overall. They do not directly link to gross margins. Conversely, relevant costs are those providing a distinction between two alternatives and can be avoided by selecting one option over another. Shelby should acknowledge that administrative costs are highly relevant when making her decision about the product line.