Each week Kline Company produces 800 units of a product that has variable costs of $8 per unit. Total fixed costs for the month are $6,800. A special order is received for 200 units of the same product at a price of $9 per unit. In deciding to accept or reject this special order, it is appropriate to consider the
A) difference between the offered price and the variable cost per unit, or $1.00.
B) old fixed cost per unit of $8.50.
C) new fixed cost per unit of $6.80.
D) difference between the two fixed costs per unit, which is $1.70.

Question

Quizplus · Accepted Answer

In deciding whether to accept or reject the special order, the relevant cost to consider is the difference between the offered price and the variable cost per unit, which is $1.00 ($9.00 - $8.00). Fixed costs are not relevant because they are already incurred and will not change based on the acceptance or rejection of the special order.

Each Week Kline Company Produces 800 Units of a Product