In deciding whether to accept business at a special price when the company is operating below full capacity, the special price should be set high enough to cover both the fixed and variable costs.

Question

Quizplus · Accepted Answer

When a company is operating below full capacity, the variable costs are lower due to the underutilization of resources. Therefore, the special price can be set lower than the regular price, as long as it covers the variable costs and contributes to covering the fixed costs. Setting the special price high enough to cover both fixed and variable costs would likely result in a price that is too high to attract customers and generate sales.

In Deciding Whether to Accept Business at a Special Price