If a Firm Keeps Its Costs near the Industry Average

question 19

Multiple Choice

If a firm keeps its costs near the industry average and it can command a premium price,then it can obtain ________.

• A) average profits
• B) unfair profits
• C) fair-market profits
• D) above-average profits

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Definitions:

Overhead Cost

The ongoing expenses incurred in operating a business that are not directly associated with the production of goods or services, including rent, utilities, and salaries of non-production staff.

Processing Activity

Activities involved in transforming inputs into finished goods through operations such as assembling, cooking, or chemical processing.

Activity-Based Costing

An accounting method that identifies the activities a firm performs and then assigns indirect costs to products. It improves accuracy of product costing by linking cost more directly to the activities that drive those costs.

Overhead Cost

Indirect expenses related to the general operation of a business, not directly tied to a specific product or service.