Answer the following question(s)using the information below.A manufacturing firm is able to produce 1,000 pairs of shoes per hour, at maximum efficiency.There are three eight-hour shifts each day.Due to unavoidable operating interruptions, production averages 800 units per hour.In the month of June the plant actually operated only 25 days due to avoidable shut downs.
-From the perspective of long-run product costing it is best to use
A)master-budget capacity utilization to highlight unused capacity.
B)normal capacity utilization for benchmarking purposes.
C)practical capacity for pricing decisions.
D)theoretical capacity for performance evaluation.
E)supply capacity to satisfy customer demand.

Question

Quizplus · Accepted Answer

Practical capacity is the best choice for pricing decisions as it takes into account the unavoidable operating interruptions that affect the actual production rate. Using master-budget capacity utilization or theoretical capacity may overestimate the production capacity which can lead to incorrect pricing decisions. Normal capacity utilization is useful for benchmarking purposes but does not consider operating interruptions. Supply capacity is important for satisfying customer demand but does not provide information for pricing decisions.

Answer the Following Question(s)using the Information Below