If there is excess capacity,what must the minimum acceptable price for a special order cover?

Question

Quizplus · Accepted Answer

The minimum acceptable price for a special order should cover the incremental or additional costs incurred to produce and fulfill that order. This would include both variable costs (costs that vary with the level of production, such as direct materials and direct labor) as well as incremental fixed costs (costs that do not vary with the level of production, but will be incurred specifically for the special order, such as additional machine setup costs). By covering these costs, the company can ensure that accepting the special order will not result in a loss. It is not necessary to include the contribution margin usually earned on regular units, as this would lead to a higher price than necessary and could result in losing the special order to a competitor.

If There Is Excess Capacity,what Must the Minimum Acceptable Price