Special Orders

Question 1

Presumed Excess Capacity

Answer 1

Compares Variable cost per unit to revenue generated per unit

If selling price per unit > variable cost per unit = Order should be accepted

Fixed costs are Sunk and NOT Relevant in decision making

Question 2

Presumed Full Capacity

Answer 2

Include opportunity costs

Question 3

Opportunity Costs under presumed full capacity

Answer 3

Contribution margin that would have been produced if the special order were not accepted

Question 4

Under presumed full capacity - the next best alternative use of the facility is

Answer 4

The Production that is forfeited to produce the special order