When making short-term decisions whether to accept special orders at reduced prices, the most relevant factor is:Group of answer choicesfixed costs.variable costs.none of the options are relevant.existence of spare capacity.
Question
When making short-term decisions whether to accept special orders at reduced prices, the most relevant factor is:Group of answer choicesfixed costs.variable costs.none of the options are relevant.existence of spare capacity.
Solution
When making short-term decisions whether to accept special orders at reduced prices, the most relevant factor is the existence of spare capacity.
Here's why:
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Fixed costs: These are costs that do not change with the level of output. They are irrelevant to the decision because they will be incurred regardless of whether the special order is accepted or not.
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Variable costs: These are costs that change with the level of output. They are relevant to the decision, but not the most important factor. If the special order can be fulfilled without increasing variable costs significantly, it might still be profitable to accept the order.
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None of the options are relevant: This is not correct because the existence of spare capacity is indeed a relevant factor.
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Existence of spare capacity: This is the most relevant factor. If there is spare capacity, the special order can be accepted without disrupting regular operations or incurring additional fixed costs. The additional revenue from the special order could contribute to covering fixed costs and increasing overall profitability.
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