Snapper Tool Company has plenty of excess capacity to accept a special order. Shown below is an "what-if" analysis of the special order. Which of the following is the correct decision and reason?

A) Yes, since the goal is to fill capacity as much as possible to keep fixed overhead variances as low as possible.
B) No, the company will only break even.
C) No, since only the employees will benefit from this in that they will earn more overtime.
D) Yes, since operating profits will most likely increase.

Question

Snapper Tool Company has plenty of excess capacity to accept a special order. Shown below is an "what-if" analysis of the special order. Which of the following is the correct decision and reason?

A) Yes, since the goal is to fill capacity as much as possible to keep fixed overhead variances as low as possible. 
B) No, the company will only break even. 
C) No, since only the employees will benefit from this in that they will earn more overtime. 
D) Yes, since operating profits will most likely increase.

Quizplus · Accepted Answer

Snapper Tool Company has excess capacity, so accepting the special order will not affect its regular operations. Moreover, the operating profits are likely to increase, so accepting the order would enable the company to earn additional revenue without incurring significant additional costs. Therefore, it is economically beneficial for Snapper Tool Company to accept the special order.

Snapper Tool Company Has Plenty of Excess Capacity to Accept