Which of the following terms refers to the costs that are eliminated if a segment is eliminated?

• A. Allocated costs
• B. Sunk costs
• C. Avoidable costs
• D. Committed costs

Answer: (C)

Verified step by step guidance

1. Understand the concept of avoidable costs: These are costs that can be eliminated if a specific segment, product, or activity is discontinued. They are directly tied to the existence of the segment and do not persist once the segment is removed.
2. Differentiate avoidable costs from other types of costs: For example, sunk costs are past costs that cannot be recovered and are irrelevant to future decisions. Allocated costs are distributed costs that may not necessarily disappear with the elimination of a segment. Committed costs are long-term fixed costs that cannot be easily changed or avoided.
3. Analyze the problem statement: The question asks which costs are eliminated if a segment is eliminated. Based on the definitions, avoidable costs fit this description as they are directly tied to the segment and cease to exist when the segment is removed.
4. Review the options provided: Allocated costs, sunk costs, avoidable costs, and committed costs. Compare each term to the definition of avoidable costs to confirm the correct answer.
5. Conclude that avoidable costs are the correct term because they represent costs that are eliminated when a segment is discontinued, unlike the other options which either persist or are irrelevant to the decision.