Answer to Question #167463 in Accounting for Arpan Chakraborty

Question

The values of power sizing Expoint (E) indicate Diseconomics of sales when a) 0<E<1 b) E>1 c) E<0 d) E=1

Answer 1

The power-sizing model focuses on economies of scale. For instance, the cost of constructing a six-story building can be less than double the construction cost of a comparable three-story building. The following equation is used in estimating the cost of B based on the cost of comparable item A.

Cost of B$=$ (Cost of A) $\times [\frac{size of B}{size of A}]^x$

where x is the appropriate power-sizing exponent, available from a variety of sources. An economy of scale is indicated by an exponent less than 1.0 An exponent of 1.0 indicates no economy of scale, and an exponent greater than 1.0 indicates a dis-economy of scale.

Thus values of power sizing Expoint (E) indicate Dis-economics of sales when E>1

option (b) E>1