A Company Is Proposing to Expand Its Productive Capacity by a Significant

question 16

Multiple Choice

A company is proposing to expand its productive capacity by a significant amount. What is the decision rule that should be applied by the directors in deciding whether or not to accept the expansion proposal? Accept the project if:

• A) Its incremental revenue exceeds incremental costs
• B) Incremental revenue exceeds incremental fixed costs
• C) Incremental fixed costs do not exceed variable costs
• D) Incremental fixed costs plus incremental variable costs exceed incremental revenue

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Definitions:

Buyer

An individual or entity that purchases goods or services.

Merchandise

Products that are bought and sold, typically in a retail environment.

Competitors

Entities that compete in the same industry or market against one another, offering similar goods or services.

Key Chains

Small, usually decorative chains or rings used for holding keys together.