When there is excess capacity,it makes sense to accept a one-time-only special order for less than the current selling price when:
A)incremental revenues exceed incremental costs.
B)additional fixed costs must be incurred to accommodate the order.
C)the company placing the order is in the same market segment as your current customers.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

Accepting a one-time-only special order for less than the current selling price can still be profitable as long as the incremental revenues (revenues generated by the special order) exceed the incremental costs (costs associated with producing and fulfilling the special order). The fact that there is excess capacity means that the company's fixed costs have already been covered, so the additional cost of producing the special order should only be the variable costs associated with it. Their being in the same market segment as current customers or additional fixed costs do not necessarily impact the decision.

When There Is Excess Capacity,it Makes Sense to Accept a One-Time-Only