Accepting a special order is profitable whenever the revenue from the special order exceeds:
A)The average unit cost of production multiplied by the number of units in the order.
B)The incremental cost of producing the order.
C)The materials and direct labor costs of producing the order.
D)The fixed manufacturing costs for the period.

Question

Quizplus · Accepted Answer

Accepting a special order is profitable only if the incremental revenue from the special order exceeds the incremental cost of producing the order. Incremental cost refers to the additional costs incurred in producing the special order compared to the cost of producing the regular products. It is important to consider the incremental cost as fixed costs are already incurred in the production process and should not be factored in the decision to accept a special order. Therefore, option B is the best choice. Option A and C do not consider the incremental cost while option D includes fixed costs.

Accepting a Special Order Is Profitable Whenever the Revenue from the Special