If a company has excess capacity, the most it would pay for buying a product that it currently makes would be the
A) total cost of producing the product.
B) market value of the product.
C) market value less usual markup on the product.
D) total variable cost of producing the product.

Question

Quizplus · Accepted Answer

When a company has excess capacity, it would consider the total variable cost of producing the product as the maximum price it would pay to buy it, since fixed costs are already covered and do not change with production volume.

If a Company Has Excess Capacity, the Most It Would