If a plant is operating at full capacity and receives a one-time opportunity to accept an order at a special price below its usual price, then fixed costs are not relevant. the order will likely be rejected. only variable costs are relevant. the order will likely be accepted.

Question

Lea Harrison

Geography

23 May, 20:23

If a plant is operating at full capacity and receives a one-time opportunity to accept an order at a special price below its usual price, then fixed costs are not relevant. the order will likely be rejected. only variable costs are relevant. the order will likely be accepted.

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Answers (1)

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Joshua Mcgrath · Answer 1

the order will likely be rejected

Explanation:

• Maximum theoretical capacity, nominal or design capacity. It is the one defined when a new (industrial) installation is planned where it is expected to achieve a certain ideal production when the plant is effectively in operation, it is the capacity that we will obtain if we work 365 days a year for 24 hours. of the day, it is a theoretical value never attainable. If we have entrusted the assembly of the plant to third parties, I think it is necessary that its suppliers define said Maximum Theoretical Capacity, so we should demand that both agree.

• Maximum Practical Capacity. It is the industrial capacity where it is expected to achieve a certain production when the plant is effectively in operation.

• Effective or Demonstrated Capacity. It is the one obtained in normal operating conditions with the normal calendar and usual shifts, with a state of maintenance of the process within the usual. It is a capacity that can be sustained for continuous (long) periods of time.

Already described the definition of maximum capacity there is no reason why we should accept a single order in disadvantageous conditions, since it is assumed that if you are working at maximum capacity it is because you can place the generated product on the market.