Question

Which of the following is true if a company can accept a special order without affecting its regular sales and is within plant capacity?

1) Net income will not be affected.
2) Net income will increase if the special unit selling price exceeds the unit variable costs.
3) Net income will decrease.
4) Additional fixed costs will likely be incurred.

Answer 1

If a company can accept a special order without affecting its regular sales and is within plant capacity, net income will not be affected, net income will increase if the special unit selling price exceeds the unit variable costs, net income will not decrease, and no additional fixed costs will likely be incurred.

Step-by-step explanation:

If a company can accept a special order without affecting its regular sales and is within plant capacity, it means that the company has the resources and capability to fulfill the special order without compromising its normal operations. In this scenario:

1. Net income will not be affected. Since the special order is separate from the regular sales and within plant capacity, the company can generate additional revenue without incurring extra costs or reducing its regular sales.
2. Net income will increase if the special unit selling price exceeds the unit variable costs. If the special unit selling price is higher than the unit variable costs, the company will earn a profit on each unit sold.
3. Net income will not decrease or be affected negatively.
4. There is no indication that additional fixed costs will be incurred.