Asked by Shalini Ballur on Jun 15, 2024
Verified
If a company must expand capacity to accept a special order it is likely that there will be
A) an increase in unit variable costs.
B) no increase in fixed costs.
C) an increase in variable and fixed costs per unit.
D) an increase in fixed costs.
Special Order
A one-time or nonregular order that can require special pricing or production adjustments in manufacturing or service processes.
Variable Costs
Expenses that vary directly with the amount of production or business operations.
Fixed Costs
Expenses that do not change in total amount with changes in the level of business activity or production volumes, such as rent, salaries, and insurance.
- Acquaint with the decision-making criteria for special orders, taking into account capacity limitations and incremental cost factors.
Verified Answer
HL
Harshi LakkadJun 21, 2024
Final Answer :
D
Explanation :
Expanding capacity involves increasing the resources used to produce goods or services. Fixed costs are those that do not change with changes in production levels, such as investment in equipment and buildings. Therefore, if a company must expand capacity, there will likely be an increase in fixed costs.
Learning Objectives
- Acquaint with the decision-making criteria for special orders, taking into account capacity limitations and incremental cost factors.