Dubin Company is operating at capacity and wants to add a new service to its expanding business. The new service should be added as long as service revenues exceed the sum of variable costs and fixed costs.

Question

Quizplus · Accepted Answer

The decision to add a new service should be based on whether the incremental revenues exceed the incremental costs, not just if service revenues exceed the sum of variable and fixed costs. This is because fixed costs may not increase if the company is already operating at capacity.

Dubin Company Is Operating at Capacity and Wants to Add