Multiple Choice QuestionManagers should accept special orders if the special-order priceMultiple choice question.is greater than variable costis equal to fixed and variable costs.is greater than fixed costis equal to the variable cost
Question
Multiple Choice QuestionManagers should accept special orders if the special-order priceMultiple choice question.is greater than variable costis equal to fixed and variable costs.is greater than fixed costis equal to the variable cost
Solution 1
Managers should accept special orders if the special-order price is greater than variable cost.
Here's why:
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Variable costs are the costs that change directly with the level of output or sales. This includes costs like raw materials, direct labor, etc.
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If the special-order price (the price at which the special order is being sold) is greater than the variable cost, it means that the company is covering its variable costs and making a profit on each unit sold.
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This does not necessarily mean that the company is covering its fixed costs (costs that do not change with the level of output or sales, like rent, salaries, etc.), but as long as the special-order price covers the variable cost, the company is not losing money on each unit sold.
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Therefore, it would be beneficial for managers to accept special orders if the special-order price is greater than the variable cost.
Solution 2
Managers should accept special orders if the special-order price is greater than variable cost.
Here's why:
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Variable costs are those that change directly with the level of output. For example, the cost of raw materials increases as more units are produced.
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If the special-order price (the price at which the order is being offered) is greater than the variable cost, it means that the company will be able to cover the costs associated with producing the additional units.
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Any amount received above the variable cost contributes to covering the fixed costs (those that do not change with the level of output, like rent or salaries) and, if high enough, can lead to additional profit.
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Therefore, as long as the special-order price is greater than the variable cost, accepting the special order will be beneficial for the company.
Note: This assumes that accepting the special order will not affect regular sales or lead to any other unforeseen negative consequences.
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