If a decision regarding special orders is based only on costs, management should:

Question

Quizplus · Accepted Answer

Accepting any order where the payoff covers the variable costs and the direct fixed costs ensures that the order is actually contributing to the profitability of the company and covering both the variable costs and direct fixed costs associated with the order. Accepting orders solely based on payoff or excess capacity utilization may lead to accepting unprofitable orders, which is not beneficial to the company in the long run.

If a Decision Regarding Special Orders Is Based Only on Costs