The use of theoretical capacity results in an unrealistically low fixed manufacturing cost per unit because it is based on ________.
A) real available capacity
B) an unattainable level of capacity
C) normal capacity utilization
D) normal costing

Question

Quizplus · Accepted Answer

Theoretical capacity assumes that the production process will operate at 100% capacity without any interruption, breakdown or delays, which is an unattainable level of capacity. Therefore, using theoretical capacity to determine fixed manufacturing cost per unit will result in an unrealistically low cost per unit.

The Use of Theoretical Capacity Results in an Unrealistically Low