Closure of a loss-making line or production department

Question 1

Why do some production departments make a loss?

Answer 1

When fixed costs as well as the variable costs have been apportioned to it.

Question 2

When should a business close a loss-making line?

Answer 2

If it is not making a positive contribution, i.e. revenue is greater than its variable costs.

Question 3

What is the exception to not closing a loss-making line?

Answer 3

If closing the line would allow a business to operate another line that would generate higher contribution.