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

Accepting a special order should provide a contribution margin that covers all relevant costs. Relevant costs include variable costs (which are directly related to production) and any additional fixed costs that will be incurred (such as additional labor or material costs). Opportunity costs are not relevant costs, as they do not involve any out-of-pocket expenses. Therefore, the best choice is D, which considers all relevant costs.

Managers Should Accept a Special Order If Its Price Is