Overland Shipping Company is involved in a competitive bidding situation. Variable costs related to the project total $520,000, and allocated fixed cost is $95,000. Which of the following cost figures should be used in setting a minimum bid price if Overland has (1) excess capacity and (2) no excess capacity? $$\begin{array} { l l c }
& \text { Excess Capacity } & \text { No Excess Capacity } \
\text { A. } & \$ 0 & \$ 0 \
\text { B. } & \$ 520,000 & \$ 520,000 \
\text { C. } & \$ 520,000 & \$ 615,000 \
\text { D. } & \$ 615,000 & \$ 520,000 \
\text { E. } & \$ 615,000 & \$ 615,000
\end{array}$$
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question

Overland Shipping Company is involved in a competitive bidding situation. Variable costs related to the project total $520,000, and allocated fixed cost is $95,000. Which of the following cost figures should be used in setting a minimum bid price if Overland has (1) excess capacity and (2) no excess capacity? $$\begin{array} { l l c } 
& \text { Excess Capacity } & \text { No Excess Capacity } \
\text { A. } & \$ 0 & \$ 0 \
\text { B. } & \$ 520,000 & \$ 520,000 \
\text { C. } & \$ 520,000 & \$ 615,000 \
\text { D. } & \$ 615,000 & \$ 520,000 \
\text { E. } & \$ 615,000 & \$ 615,000
\end{array}$$
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Quizplus · Accepted Answer

With excess capacity, only variable costs ($520,000) are relevant. Without excess capacity, both variable costs and allocated fixed costs ($520,000 + $95,000 = $615,000) are relevant.

Overland Shipping Company Is Involved in a Competitive Bidding Situation