Which of the following is true regarding the treatment of allocated common fixed costs when making decisions about dropping a product?

Multiple Choice

• Allocated common fixed costs should be considered irrelevant because they will not be eliminated if the product line is dropped.

• Common fixed costs should be allocated to products based on their sales revenue as this best reflects each products ability to bear the costs.

• Allocating common fixed costs to products increases each products contribution margin.

• Allocating common fixed costs to products may overstate the true profitability of the product.