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) full cost of producing the product
C) total cost of producing the product
D) business function cost of the product

Question

Quizplus · Accepted Answer

When a company has excess capacity, it means that it is not utilizing all its resources to their full potential. In this case, the company's fixed costs are already sunk, and it has extra capacity to produce more units of a product without incurring additional fixed costs. Therefore, the company's cost for producing each additional unit is reduced to its variable cost. Hence, the most the company would pay for buying a product that it currently makes would be the total variable cost of producing the product.

If a Company Has Excess Capacity, the Most It Would