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Economics, Accounting & Business: Post your doubts here!

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If the department is sharing the overheads and fixed cost even after making a loss we can still keep it open. You need to look at the contributions of the other departments and see whether they have the 'strength' in bearing the overheads.
 
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wait wait .... when do we decide whether to keep a department open or close it?
Like here
http://www.xtremepapers.com/papers/CIE/Cambridge International A and AS Level/Accounting (9706)/9706_w10_qp_31.pdf
Q20

the company should keep all departments open whether they are making a loss or profit as in case of loss their is some what positive contribution by the product to cover fixed expenditure or else a whole of the fixed will have to be paid decreasing the profits more
 
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I think you need to choose the price...that will give a rise to the same contribution ... and it will use existing machinery to make a contribution of 400000 ..... that means there will be definitely some variable costs....so 1000000 will give rise rise to a contribution of 400000 using the variable cost 600000 (frm the machinery) that will be able to cover the fixed costs as they will not change....
 
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