Each month Fig Company produces 11,000 units of a product that sells for $18 per unit, and has variable costs of $12 per unit.Total fixed costs for the month are $77,000.A special order is received for 5,000 units at a price of $14 per unit.Fig Company has adequate capacity for the special order.Relevant to the decision of whether to accept or reject this special order is the _____.
A)difference between the offered price and the variable cost per unit
B)difference between the current fixed cost per unit and the expected fixed cost per unit
C)difference between the current sales price and the proposed sales price
D)all of these answers are correct

Question

Quizplus · Accepted Answer

The relevant factor in this decision is the difference between the offered price and the variable cost per unit. The special order is at a lower price than the regular selling price, but if the variable costs are lower than the selling price, the order may be profitable. The fixed costs are already being incurred, so they are not relevant to this decision. The sales price comparison is also not relevant since the special order has a different price than the regular selling price. Therefore, the correct answer is A.

Each Month Fig Company Produces 11,000 Units of a Product