Special decisions

Question 1

What are special order relevant costs?

Answer 1

The only relevant costs are the costs directly attributable to the special order

If the company is operating at capacity, the opportunity cost associated with product that must be cancelled in order to complete the special order

If the special order can be completed using existing capacity, only sales revenues and the avoidable variable costs of producing the order need to be considered.

Question 2

What do you have to consider when outsourcing?

Answer 2

• The relevant costs

- The quality of the supplier who we would pick to outsource