Which of the following best describes the cost of underutilising productive capacity?
A) Lost sales of products that are produced.
B) Lost contribution margin of products that are not produced.
C) An implicit cost that is inevitable.
D) There is no cost.

Question

Quizplus · Accepted Answer

Underutilising productive capacity means that the company is not producing as much as it could, which means that it is losing out on potential contribution margin from products that are not being produced. This is a cost because it represents a missed opportunity to generate revenue and profit. A is also a possible answer, but it only applies if there is actual demand for the products that are not being produced. C and D are not accurate as underutilisation represents a missed opportunity cost.

Which of the Following Best Describes the Cost of Underutilising