Management is interested in utilizing the full capacity of production facilities because it
A)spreads variable costs over a greater number of units, thereby reducing the variable cost per unit.
B)spreads fixed costs over a greater number of units, thereby reducing the fixed cost per unit.
C)reduces total variable costs.
D)reduces total fixed costs.

Question

Quizplus · Accepted Answer

Utilizing full capacity of production facilities helps to spread fixed costs over a greater number of units, thereby reducing the fixed cost per unit. Variable costs may or may not be affected by production capacity utilization, depending on how the costs are structured (e.g. whether they are truly variable or semi-variable).

Management Is Interested in Utilizing the Full Capacity of Production