Accepting a special order will improve overall net operating income if the revenue from the special order exceeds:
A) the contribution margin on the order.
B) the incremental costs associated with the order.
C) the variable costs associated with the order.
D) the sunk costs associated with the order.

Question

Quizplus · Accepted Answer

Accepting a special order will improve overall net operating income if the additional revenue from the order exceeds the incremental costs associated with fulfilling the order. This is because the contribution margin on the order and the variable costs associated with the order are already factored into the decision-making process for regular sales. Sunk costs, on the other hand, are not relevant to the decision since they cannot be recovered and therefore should not be considered in future decisions.

Accepting a Special Order Will Improve Overall Net Operating Income