Which of the Following Best Describes Practical Capacity

question 6

Multiple Choice

Which of the following best describes practical capacity?

• A) It is the level of capacity that reduces theoretical capacity by considering unavoidable operating interruptions, such as scheduled maintenance time and shutdowns for holidays.
• B) It is the level of capacity based on producing at full efficiency all the time.
• C) It is the level of capacity utilization that satisfies average customer demand over a period that includes seasonal, cyclical, and trend factors.
• D) It is the level of capacity utilization that managers expect for the current budget period, which is typically one year.

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Definitions:

FIFO

First In, First Out, an inventory valuation method where goods purchased or produced first are sold or used first.

LIFO

An inventory valuation method, "Last-In, First-Out," where the most recently produced items are recorded as sold first.

Average Cost

A method of inventory valuation which calculates the cost of goods sold based on the average cost of all similar items in inventory.

Periodic Inventory System

An accounting method where the inventory is physically counted at specific intervals to determine the cost of goods sold and the ending inventory balance.