CAF-5 · Chapter 15 · Question 6 of 10
A company has spare manufacturing capacity and receives a special one-off order at a price slightly below its normal selling price. Which of the following statements is true regarding the financial evaluation of this order?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) The order should be accepted if the incremental revenue exceeds the incremental variable costs and any specific fixed costs caused directly by the order.
Explanation
When there is spare capacity, no regular sales are displaced (no opportunity cost). Fixed costs remain unchanged and are therefore irrelevant. The order should be accepted if the extra revenue covers the extra (variable and specific fixed) costs, yielding a positive incremental contribution.
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