If a Company Has Excess Capacity, the Most It Would

question 112

Multiple Choice

If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the:

• A)total variable cost of producing the product
• B)market value less the usual markup on the product
• C)total cost of producing the product
• D)market value of the product

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Definitions:

Matching Principle

An accounting principle that requires expenses to be recorded and recognized in the same period as the revenues they helped to generate.

Expenses

Costs incurred in the normal course of business to generate revenues, including costs such as rent, salaries, and utility expenses.

Related Revenue

Income generated from sales or transactions that are directly related to the core operations or primary activities of a business.

Deferred Revenue

Income received by a company for goods or services yet to be delivered or performed; it is recorded as a liability on the balance sheet until the transaction is completed.