In situations when management must decide on accepting or rejecting one-time-only special orders, where there is sufficient capacity, which one of the following would not be relevant to the decision?
A) Absorption (that is, full product) cost.
B) Differential costs.
C) Direct costs.
D) Variable costs.
E) Incremental costs.

Question

Quizplus · Accepted Answer

Absorption (that is, full product) cost will include fixed manufacturing overhead, which would not change with the acceptance or rejection of a one-time-only special order. Therefore, it would not be relevant to the decision in situations where there is sufficient capacity. Differential costs, direct costs, variable costs, and incremental costs are all relevant because they would change based on the acceptance or rejection of the special order.

In Situations When Management Must Decide on Accepting or Rejecting