A home decorating company has certain amount of fixed cost that cannot be recovered due to decrease in the demand for home furnishings and floor
coverings These costs include the cost of Vinyl flooring manufacturing equipment and the cost of warehouses built to store materials and finished
goods. These costs are examples of
Select one
a Incremental costs
Perod costs
c. Capacity costs
Connbution margin costs
e hidden costs
Answers
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We are provided with a few costs and we are asked out of the costs that are provided which costs are the one that is incurred in the question. The correct answer will be c. Capacity costs.
- When a business is started, progressed, and running there are various different types of costs that are incurred.
- Incremental costs are those costs that are used to produce one more article for the company so this cannot be the correct answer.
- Period costs are the costs that are incurred by the company that is not directly related to the production process so even this cannot be the correct answer.
- Similarly, the other two options provided also are not related to the fixed expenses of the company which are the costs that are incurred by the company.
- The expenses incurred that are provided in the question are of a fixed nature and it was made in order to make the production process more convenient.
- These types of expenses are called capacity costs and they are mostly such costs that are of a capital nature.
- Therefore the correct answer will be c. Capacity costs.
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Several expenses are given to us, and we are requested to identify the cost that is incurred in the question from those costs. Capacity prices will be the right response.
- There are many distinct kinds of expenses incurred throughout the beginning, development, and operation of a firm.
- This cannot be the right response because incremental costs are those that are used to produce one additional article for the corporation.
- Even this cannot be the right response because period costs are expenses incurred by the company that is not directly connected to the manufacturing process.
- The other two alternatives offered are also unrelated to the company's fixed costs, which are the costs that the company incurs.
- The costs incurred, which are listed in the question, are of a fixed character and were incurred to facilitate the production process.
- These expenditures are referred to as capacity costs, and they typically have a capital component.
- So, option c, "Capacity costs," will be the right response.
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