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Poor decision making may result when satisfactory prices are found by adding fixed percentage to "full cost" of a product when that "full cost" comprises a unitized fixed cost. Lesson in module is that any selling price above contribution margin will add to wealth of firm. This being case, is there danger in decision rule which states "always accept any offer which has positive contribution margin?"

What about issue of capacity? Does it have any impact on above decision making process if company works at full capacity or have idle capacity?

Why is it sometimes significant to assign overhead costs between products, services or some other grouping? Other times allocations must be disregarded as in this case - why?

 

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M931299

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