Shutdown decision
A shutdown or discontinuance decision compares the contribution lost with costs genuinely saved and other changed consequences. A segment showing an accounting loss after common-cost allocation can still support overall profit. Include closure, redundancy, contract, customer and restart effects where relevant. Distinguish a temporary suspension from permanent exit and consider how the action affects related products, capacity and long-term strategy.
Worked example
A product earns $50,000 contribution but is charged $30,000 avoidable fixed cost and $40,000 unchanged common allocation. Dropping it reduces total profit by $20,000 before other effects.
Common mistake
A reported segment loss is not proof that closure improves the organisation’s profit.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | PM | Direct | September 2026–June 2027 |
