If a company must expand capacity to accept a special order, it is likely that there will be an increase in unit variable costs. an increase in fixed costs. an increase in variable and fixed costs per unit. no increase in fixed costs.

Question

Jorge Soto

Business

1 June, 10:00

If a company must expand capacity to accept a special order, it is likely that there will be an increase in unit variable costs. an increase in fixed costs. an increase in variable and fixed costs per unit. no increase in fixed costs.

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Blaze Lloyd · Answer 1

If a company must expand capacity to accept a special order, it is likely that there will be an increase in fixed costs.

Explanation:

The fixed costs are the part of the total costs of production that remain constant during a given reference quantity in a certain period. These include, for example, depreciation of fixed assets or rental or interest expenses. Since fixed costs are incurred regardless of the application quantity (short-term), they cannot be apportioned to the unit costs according to the cause.

In the present case, given that the company must expand its capacity to take the special order, it means that all of its production factors are totally devoted to production, so that in order to produce a greater quantity of goods, the productive factors must be increased, which are part of the fixed production costs that the company has. Therefore, as the costs of production are altered, there will be an increase in fixed costs.