When a firm has the opportunity to add a project that will utilize excess factory capacity (that is currently not being used),which costs should be used to help determine if the added project should be undertaken?
A)allocated overhead costs
B)sunk costs
C)incremental costs
D)average costs

Question

Quizplus · Accepted Answer

When determining whether to undertake an added project utilizing excess factory capacity, the relevant costs to consider are the incremental costs associated with the project. These incremental costs are the additional costs that result from undertaking the project, including any additional material or labor costs. Sunk costs, such as costs that have already been incurred, are not relevant because they cannot be recovered regardless of whether the project is undertaken or not. Allocated overhead costs and average costs, which represent the average cost per unit produced, are not relevant because they do not consider the specific costs associated with the added project.

When a Firm Has the Opportunity to Add a Project