If a company has excess capacity, which of the following is a sensible bidding strategy?
A) Set a price to cover all costs.
B) Base the bid on the incremental costs incurred because the job will contribute toward the company's profit.
C) Base the bid solely on direct labor hours.
D) Downplay the potential impact of competitors.
E) Allocate common fixed costs to individual jobs before preparing the bid.

Question

Quizplus · Accepted Answer

Basing the bid on the incremental costs incurred is sensible when a company has excess capacity because the job will contribute toward the company's profit as long as the price covers the incremental costs. This approach allows the company to stay competitive while also making a profit from the excess capacity.

If a Company Has Excess Capacity, Which of the Following