In the analysis concerning the acceptance or rejection of a special order, which items are relevant?
A) Variable costs only
B) Fixed costs only
C) Variable costs and fixed costs
D) Variable costs and avoidable costs

Question

Quizplus · Accepted Answer

In the analysis concerning the acceptance or rejection of a special order, only those costs that will be affected by the special order should be considered. Variable costs are always relevant because they change with the changes in the level of activity. Avoidable costs, which are a subset of variable costs, are also relevant because they can be eliminated if the special order is not accepted. On the other hand, fixed costs are irrelevant in the short-run decision since they will not change regardless of whether the special order is accepted or not.

In the Analysis Concerning the Acceptance or Rejection of a Special