Should a Company with High Fixed Costs and Unused Capacity

question 25

Essay

Should a company with high fixed costs and unused capacity raise selling prices to try to fully recoup its costs?

---

Definitions:

Work in Process

This refers to the portion of manufactured goods that are not yet completed in the production process.

Manufacturing Overhead

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

T Accounts

A bookkeeping tool used to visualize and simplify the recording of transactions in debit and credit format.

Underapplied Overhead

A situation where the allocated manufacturing overhead costs are less than the actual overhead costs.