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What are escapable costs?
- a)Costs that cannot be reduced.
- b)Costs that can be reduced due to a contraction in business activities.
- c)Costs that are controllable by the management.
- d)Costs associated with specialized machinery.
Correct answer is option 'B'. Can you explain this answer?
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What are escapable costs?a)Costs that cannot be reduced.b)Costs that c...
Understanding Escapable Costs
Escapable costs are financial expenditures that can be eliminated or reduced when a business decides to scale back its operations. They play a crucial role in financial decision-making and resource allocation.
Definition of Escapable Costs
- Escapable costs are essentially costs that can be avoided if a business reduces or ceases certain activities.
- Unlike fixed costs, which remain constant regardless of business activity levels, escapable costs provide flexibility in financial planning.
Why Option 'B' is Correct
- Reduction Due to Contraction: Option 'B' states that escapable costs are those that can be reduced due to a contraction in business activities. This is accurate because these costs directly correlate with operational levels.
- Examples: If a company decides to close a division or reduce production, costs like salaries of employees in that division, utility bills, and other operational expenses can be eliminated.
- Financial Strategy: Understanding escapable costs is essential for businesses during downturns, as it allows management to make informed decisions about where to cut back.
Other Options Explained
- Option 'A' (Costs that cannot be reduced): This describes fixed costs, not escapable costs.
- Option 'C' (Controllable by management): While management can control escapable costs, it does not encapsulate their essence.
- Option 'D' (Costs associated with specialized machinery): This refers to specific asset-related costs which may or may not be escapable depending on the situation.
In summary, escapable costs provide the leeway for businesses to adapt to changing circumstances, making option 'B' the correct choice. Understanding these costs is vital for sound financial management and strategic decision-making.
Escapable costs are financial expenditures that can be eliminated or reduced when a business decides to scale back its operations. They play a crucial role in financial decision-making and resource allocation.
Definition of Escapable Costs
- Escapable costs are essentially costs that can be avoided if a business reduces or ceases certain activities.
- Unlike fixed costs, which remain constant regardless of business activity levels, escapable costs provide flexibility in financial planning.
Why Option 'B' is Correct
- Reduction Due to Contraction: Option 'B' states that escapable costs are those that can be reduced due to a contraction in business activities. This is accurate because these costs directly correlate with operational levels.
- Examples: If a company decides to close a division or reduce production, costs like salaries of employees in that division, utility bills, and other operational expenses can be eliminated.
- Financial Strategy: Understanding escapable costs is essential for businesses during downturns, as it allows management to make informed decisions about where to cut back.
Other Options Explained
- Option 'A' (Costs that cannot be reduced): This describes fixed costs, not escapable costs.
- Option 'C' (Controllable by management): While management can control escapable costs, it does not encapsulate their essence.
- Option 'D' (Costs associated with specialized machinery): This refers to specific asset-related costs which may or may not be escapable depending on the situation.
In summary, escapable costs provide the leeway for businesses to adapt to changing circumstances, making option 'B' the correct choice. Understanding these costs is vital for sound financial management and strategic decision-making.
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What are escapable costs?a)Costs that cannot be reduced.b)Costs that c...
Escapable costs are costs that can be reduced or escaped due to a contraction in the activities of a business enterprise. These costs are related to the net effect on costs when business activities are reduced and can include various factors like closing unprofitable branches or reducing credit sales.
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What are escapable costs?a)Costs that cannot be reduced.b)Costs that can be reduced due to a contraction in business activities.c)Costs that are controllable by the management.d)Costs associated with specialized machinery.Correct answer is option 'B'. Can you explain this answer?
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