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)normal capacity utilisation.
C)an unattainable level of capacity.
D)normal costing.

Question

Quizplus · Accepted Answer

Theoretical capacity is based on the assumption that the production process is running at its maximum possible capacity without any downtime, breakdowns or any other interruptions. This level of capacity is unattainable in reality and is considered an ideal case. Therefore, using theoretical capacity as a basis for costing would result in an unrealistically low fixed manufacturing cost per unit, which is why it is not a practical measure.

The Use of Theoretical Capacity Results in an Unrealistically Low