Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price?
A) Never
B) When additional fixed costs must be incurred to accommodate the order
C) When the company thinks it can use the cheaper materials without the customer's knowledge
D) When incremental revenues exceed incremental costs

Question

Quizplus · Accepted Answer

If Miley, Inc. has excess capacity, then it can accept a special order as long as the incremental revenues exceed the incremental costs. This would allow the company to generate additional revenue and cover any incremental costs without impacting overall profitability. However, it is not ethical or legal to use cheaper materials without the customer's knowledge. Accepting a special order with additional fixed costs would increase overall costs and decrease profitability. Therefore, the best option is to accept a special order when incremental revenues exceed incremental costs.