If a Plant Is Operating at Full Capacity and Receives

question 66

Multiple Choice

If a plant is operating at full capacity and receives a one-time opportunity to accept an order at a special price below its usual price then

• A) only variable costs are relevant.
• B) fixed costs are not relevant.
• C) the order will likely be accepted.
• D) the order will likely be rejected.

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Definitions:

Traditional Cost Systems

Traditional cost systems allocate overhead costs based on measures like direct labour hours or machine hours, often resulting in less accurate product costing.

Committed Resource

Assets or inputs that a company has dedicated to a certain project or operational activity, reflecting a long-term investment or commitment.

ABC Implementation

The process of applying Activity-Based Costing, an accounting method that assigns costs to activities based on their use of resources.

Uncertainty

A condition characterized by a lack of sufficient knowledge, making it difficult to precisely identify the current situation, predict future events, or acknowledge multiple potential outcomes.