A Necessary Cost-Side Condition for a Firm to Implement a Cross-Subsidization

question 96

Multiple Choice

A necessary cost-side condition for a firm to implement a cross-subsidization pricing strategy is:

• A) economies of scale.
• B) economies of scope.
• C) constant marginal cost.
• D) limited capacity.

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Definitions:

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to allocate manufacturing overhead to individual units of production based on estimated costs.

Machine Hours

The total hours that a machine or group of machines operates during a specific period, often used as a basis for allocating manufacturing overhead.

Direct Labour

Compensation for employees who engage specifically in the creation of a company's products, an essential component of production costs.

Predetermined Overhead Rate

A rate used to apply manufacturing overhead to products or job orders, based on a predetermined formula.