Question

Operating at or near full capacity will require a firm considering a "special sales order" to potentially recognize the:

Multiple Choice
-Opportunity cost from lost sales.
-Value of full employment.
-Use of operating leverage.
-Likely increase in terms of the fixed cost associated with the order.
-The amount of facility-level cost drivers.

Answer 1

When considering a special sales order near full capacity, a firm must account for the opportunity cost from lost sales. The correct answer is option a.

Step-by-step explanation:

Operating at or near full capacity when considering a "special sales order" would require a firm to potentially recognize the opportunity cost from lost sales. This is because by taking on the special order, the firm may have to forgo other sales opportunities due to its capacity constraints.

The costs associated with accepting the order are not just the direct costs of production but also the profits that could have been made had that capacity been used for alternative sales. In business decision-making, it is crucial to consider not only the revenues from a new special order.

But also the opportunity costs of the alternative uses of production capacity. A firm's cost structure and the analysis of its market structure would both contribute to this decision from a long-run perspective.