If There Is Excess Capacity,what Must the Minimum Acceptable Price

question 53

Multiple Choice

If there is excess capacity,what must the minimum acceptable price for a special order cover?

• A)variable costs associated with the special order
• B)variable and fixed manufacturing costs associated with the special order
• C)variable and incremental fixed costs associated with the special order
• D)variable costs and incremental fixed costs associated with the special order plus the contribution margin usually earned on regular units

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Definitions:

Manufacturing Overhead

All indirect costs associated with the manufacturing process, excluding direct materials and direct labor.

Activity-Based Costing

An approach to costing that recognizes activities within an organization and distributes their costs across all products and services according to the real consumption of each.

Product Margin

The difference between the selling price of a product and its production costs, indicating the profitability of a product.

Activity-Based Costing

A method of allocating costs to products and services based on the activities that contribute to those costs instead of on traditional measures like machine hours.