If two factories produce the exact same product having the same costs, and factory costs are completely allocated to the individual products, the factory operating at 80% capacity (while the other operates at 100% capacity)
A) would have a lower rate of cost allocation to each unit of production.
B) would have a higher rate of cost allocation to each unit of production.
C) would have the same rate of cost allocation to each unit of production as the 100% capacity operation.
D) would be operating at a loss, because of unused capacity.

Question

Quizplus · Accepted Answer

When a factory operates at a lower capacity (80% in this case), its fixed costs are spread over fewer units compared to a factory operating at full capacity (100%). This results in a higher cost per unit because the total costs (fixed and variable) are allocated over a smaller number of units, leading to a higher rate of cost allocation per unit.

If Two Factories Produce the Exact Same Product Having the Same