Question

If a company has excess capacity, ________ will be an unavoidable cost.

A : variable overhead
B : fixed overhead
C : operating expenses
D : cost of sales

Answer 1

Fixed overhead cost, which includes expenses like rent and salaries, is unavoidable for a company with excess capacity as these costs do not vary with production levels.

If a company has excess capacity, _fixed overhead_ will be an unavoidable cost.

The correct answer is Option B

Step-by-step explanation:

If a company has excess capacity, fixed overhead will be an unavoidable cost.

Fixed costs are often sunk costs that a company cannot recoup, regardless of the level of production. Since these costs have already been incurred and cannot be altered, they remain constant whether a company is operating at full capacity or has excess capacity. Unlike variable costs which can fluctuate based on production levels, fixed overhead costs such as rent, salaries, and insurance need to be paid even if production is lowered. So, when a company has excess capacity, fixedOverhead is unavoidable since it doesn't change with production volume.

So the correct answer is Option B