When there is an excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price if ________.
A) incremental revenues exceed incremental costs
B) additional fixed costs is incurred to accommodate the order
C) the company placing the order is in the same market segment as your current customers
D) incremental revenue equals incremental operating income

Question

Quizplus · Accepted Answer

Accepting a one-time-only special order for less than the current selling price can be beneficial if the incremental revenues exceed the incremental costs incurred to fulfill it. This will result in a positive contribution margin, which will increase the overall profit of the company. However, if additional fixed costs are incurred or if the company placing the order is not in the same market segment as the current customers, it may not be profitable to accept the order. Therefore, option A is the correct choice.

When There Is an Excess Capacity, It Makes Sense to Accept