Managers should accept a special order if its price is greater than the sum of:
A) All variable costs and all fixed costs
B) All variable costs and all opportunity costs
C) All fixed costs and all opportunity costs
D) Variable costs, relevant fixed costs and opportunity costs

Question

Quizplus · Accepted Answer

Managers should only accept a special order if it brings in more revenue than the costs involved in producing it. Therefore, they should consider the relevant costs, which include variable costs, relevant fixed costs, and opportunity costs (e.g. the revenue that would be lost from filling the capacity with other products or services). Option D correctly includes all of these relevant costs. Options A, B, and C do not consider opportunity costs.

Managers Should Accept a Special Order If Its Price Is