Managers should accept special orders provided the special order price exceeds the product cost per unit under absorption costing.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are allocated to products, which can result in a higher product cost per unit. For special orders, it's more relevant to consider variable costs and contribution margin because fixed costs are typically unaffected by the order. The decision should be based on whether the special order price exceeds the variable costs per unit, not the absorption costing per unit.

Managers Should Accept Special Orders Provided the Special Order Price