Question

Argus Company anticipates that other sales will be affected by the acceptance of a special order. What should the company do? Consider the opportunity cost of lost sales in the incremental analysis. Accept the order. Reject the order. Accept the order if the plant is below capacity.

Answer 1

The correct answer is letter "A": Consider the opportunity cost of lost sales in the incremental analysis.

Step-by-step explanation:

Incremental analysis refers to studying the costs of two alternatives at the moment of making a decision. Mostly known as marginal analysis, it does not include sunk costs either past costs. This analysis is used at the moment of allocating scarce resources to projects so the company makes sure their use is maximized.

Therefore, if Argus Company anticipates that accepting a special order will affect other sales, the firm must make an incremental analysis where it measures the opportunity cost of the sales that could be lost if more orders are not taken.