Final answer:
When considering a special order, it is important to account for the opportunity cost, ensure that the incremental revenue surpasses incremental costs, and confirm that normal sales remain unaffected. Idle capacity may need to be considered if fulfilling the order would require it. Overall profitability and strategic alignment with the firm's goals are also key considerations.
Step-by-step explanation:
When considering accepting a special order, there are multiple factors that a company must evaluate to make a profitable decision. It is not correct to say that opportunity costs should never be considered; in fact, they often play a critical role in determining the net benefit of accepting additional business. The statement that incremental revenue should equal increment cost is a simplification; while incremental costs and revenues are important, they must actually result in a net positive impact on profit rather than merely equalling out.
It is also important to consider that normal sales must not be affected by the acceptance of a special order to avoid cannibalizing existing business. Lastly, the condition that there must be idle capacity assumes that the special order can only be fulfilled if there is unused production capability; however, decisions may also involve a trade-off between different uses of capacity.
When making such decisions, firms have to consider not only their variable costs, which are those that change with production level but also should ensure that the total revenue from the special order exceeds these incremental costs related to the order. Fixed costs, which do not vary with production levels in the short term, are often seen as sunk costs and should generally be ignored when considering a special order, unless the order has implications that change the fixed cost structure.