In considering a special order in the short-run, managers can typically make a decision after comparing
A) contribution margins of the two options since fixed costs remain fixed in the short-run.
B) unit variable costs of the two options since these are the only costs that vary between the two options.
C) fixed costs of the two options since these costs remain constant with the two options.
D)operating incomes since fixed costs will change in the short-run, but remain constant in the long-run.

Question

In considering a special order in the short-run, managers can typically make a decision after comparing
A) contribution margins of the two options since fixed costs remain fixed in the short-run.
B) unit variable costs of the two options since these are the only costs that vary between the two options.
C) fixed costs of the two options since these costs remain constant with the two options.
D)operating incomes since fixed costs will change in the short-run, but remain constant in the long-run.

Quizplus · Accepted Answer

In the short-run, fixed costs are typically considered sunk and do not change with the decision. Therefore, managers focus on the contribution margin, which is the difference between sales revenue and variable costs, to make decisions about special orders.

In Considering a Special Order in the Short-Run, Managers Can