If a firm is at full capacity, the minimum special order price must cover
A)variable costs associated with the special order.
B)variable and fixed manufacturing costs associated with the special order.
C)variable and incremental fixed costs associated with the special order.
D)variable costs and incremental fixed costs associated with the special order plus foregone contribution margin on regular units not produced.

Question

Quizplus · Accepted Answer

At full capacity, the firm is already utilizing all of its fixed costs, so the special order must cover both the variable costs and the incremental fixed costs associated with the order. Additionally, since the firm will have to forego producing regular units to accommodate the special order, the minimum price must also cover the foregone contribution margin on those units. Therefore, option D is the most appropriate choice.

If a Firm Is at Full Capacity, the Minimum Special