Certified Specialist Of Spirits Practice Exam

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In evaluating a special order decision, which of the following is the most critical factor if the company is operating below maximum capacity?

The special order price must exceed the normal selling price. The special order price must cover all fixed and variable costs. The special order price must exceed the incremental costs of fulfilling the order. The special order must absorb a proportionate share of corporate overhead.

Correct Answer:

The special order price must exceed the incremental costs of fulfilling the order.

Explanation:

When excess capacity exists, a special order should be accepted if the incremental revenue exceeds the incremental variable (and any specific fixed) costs, providing a positive contribution margin.

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