If the firm is at full capacity, the minimum special-order price must cover
A)variable costs associated with the special order.
B)variable and fixed manufacturing costs associated with the special order.
C)variable and incremental fixed costs associated with the special order.
D)variable costs and incremental fixed costs associated with the special order, plus foregone contribution margin on regular units not produced.

Question

Quizplus · Accepted Answer

When the firm is at full capacity, taking on a special order means that regular production will have to be reduced, resulting in a loss of contribution margin on those regular units. Therefore, the minimum special-order price should cover both the variable and incremental fixed costs associated with the special order, as well as the foregone contribution margin on the regular units not produced.

If the Firm Is at Full Capacity, the Minimum Special-Order