Question
When evaluating a special order, management should:
Group of answer choices
A) Only accept the order if the incremental revenue exceeds all product costs. B) Only accept the order if the incremental revenue exceeds fixed product costs.
C) Only accept the order if the incremental revenue exceeds total variable product costs.
D) Only accept the order if the incremental revenue exceeds full absorption product costs.
Answer:
The correct answer is A)
Step-by-step explanation:
When deciding whether or not to accept an order, the following questions must be asked:
- does the company have the capacity to fulfill the order? or will it require that they expand current capacity?
- does the price offered for the order cover the order cover the costs of producing same?
- Will an attempt to satisfy the order under the given conditions trigger a violation of the Act which prohibits price discrimination?
- Does it require the company to produce at a lower price in order to be profitable? if so how will the market percieve this? Will it mar the company's brand?
One generally accepted rule is that all costs must covered.
Cheers!