Question

In a situation when the decision is to be taken about acceptance or rejection of special orders where there is a sufficient idle capacity which one is not relevant for decision making
a)Absorption cost
b) Variable cost
c) Differential cost
d) Incremental cost​

Answer 1

Explanation:

Both manufacturing and service companies often receive requests to fill special orders. These special orders are typically for goods or services at a reduced price and are usually a one-time order that, in the short-run, does not affect normal sales. When deciding whether to accept a special order, management must consider several factors:

The capacity required to fulfill the special order

Whether the price offered by the buyer will cover the cost of producing the products

The role of fixed costs in the analysis

Qualitative factors

Whether the order will violate the Robinson-Patman Act and other fair pricing legislation