Poor decision making may result when acceptable prices are determined by adding a fixed percentage to the "full cost" of a product when that "full cost" includes a unitized fixed cost.
1. In a case where any selling price above the contribution margin will add to the wealth of the firm; is there a danger in the decision rule that states "always accept any offer that has a positive contribution margin?" Please expand on your explanation by giving examples.
2. Also, what about the issue of capacity? Does it have any impact on the above decision making process if a company operates at full capacity or have idle capacity?
3. Why is it sometimes important to allocate overhead costs among products, services or some other grouping?© BrainMass Inc. brainmass.com March 4, 2021, 9:02 pm ad1c9bdddf
The answer contains the meaning of full cost,marginal cost,reason for pricing the product under marginal costing, decision making under full capacity and idle capacity utilisation , reasons for allocating the overhead on the basis of products,services or some other groups