question archive In order to determine whether a special order should be accepted at full capacity, the sales price of the special order must be compared to the per unit: a
In order to determine whether a special order should be accepted at full capacity, the sales price of the special order must be compared to the per unit: a
Subject:FinancePrice:2.87 Bought7
In order to determine whether a special order should be accepted at full capacity, the sales price of the special order must be compared to the per unit:
a. Contribution margin of the special order.
b. Variable cost and contribution margin of the special order.
c. Variable cost and contribution margin of the next best alternative.
d. Variable cost of current production and the contribution margin of the next best alternative.
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Answer:
Choice "d" is correct. If the selling price is greater than the variable cost per unit of the special order (at full capacity) plus the contribution margin per unit of the next best alternative (the opportunity cost), then the company will accept the special order. Choice "a" is incorrect. Variable costs have to be taken into account, in addition to the contribution margin of the next best alternative. Choice "b" is incorrect. The contribution margin of the next best alternative (rather than the special order) must be taken into account in order to determine whether to accept the special order. Choice "c" is incorrect. The variable costs of the special order (not the next best alternative) must be accounted for in this determination.
