If operations run on less than full capacity, what is the result on cost driver rates?
A)They are not affected.
B)They are too low.
C)They can be either too high or too low.
D)They are too high.

Question

Quizplus · Accepted Answer

When operations run on less than full capacity, fixed costs are spread over a smaller volume of output, resulting in higher cost driver rates. This is because fixed costs are allocated to each unit of output, and with lower output, each unit has to absorb a larger portion of the fixed costs, leading to higher rates. Therefore, the cost driver rates can be too low.

If Operations Run on Less Than Full Capacity, What Is