A Department Accepts a New Order from a Customer

question 44

Multiple Choice

A department accepts a new order from a customer. It has already incurred £100 for design costs. It has also incurred costs of £200 for visits by sales staff. If the order is accepted a quality inspector will be transferred from another department. The inspector earns £20,000 per year. If the order is accepted there will be additional training costs of £700.
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In this decision the differential design costs are:

• A)£0.
• B)£100.
• C)£200.
• D)£300.

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Definitions:

Annual Output

The total production or quantity of goods and services produced by a company or economy in one year.

Economies of Scale

The cost advantage achieved by an increase in production, leading to a decrease in the average cost per unit through efficient allocation of resources and spreading of fixed costs.

Cost-output Elasticity

The ratio of the percentage change in cost relative to the percentage change in output, indicating how costs change with output levels.

Marginal Cost

The cost associated with producing one additional unit of a product.