If a Company Has Excess Capacity, Which of the Following

question 11

Multiple Choice

If a company has excess capacity, which of the following is a sensible bidding strategy?

• A)Set a price to cover all costs.
• B)Base the bid on the incremental costs incurred because the job will contribute towards the company's cost and profit.
• C)Base the bid solely on direct labour hours.
• D)Downplay the potential impact of competitors.
• E)Allocate common fixed costs to individual jobs before preparing the bid.

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Definitions:

Direct Labor-Hours

The total hours worked by employees directly involved in manufacturing a product or providing a service.

Activity-Based Costing

Activity-based costing is an accounting method that identifies and assigns costs to specific activities, facilitating more precise economic analysis of various business processes.

Activity Rates

Rates used in activity-based costing to assign costs to products or services based on the amount of an activity they consume.

Activity-Based Costing

A method of costing that identifies individual activities as the fundamental cost objects and uses the costs of these activities to compute the costs of various products or services.