Question

Which of the following is an assumption of a special order decision? Group of answer choices The special order sales will not affect the production and sale of units sold through regular channels. Capacity may be expanded or contracted as necessary without affecting fixed costs. Total variable costs will not change. In the short run, fixed costs will increase.

Answer 1

Answer:

Capacity may be expanded or contracted as necessary without affecting fixed costs.

Explanation:

If a firm accepts a special-order, it will do so because the increased production costs will be lower than the extra revenue from the sale.

Production costs rise because special-order decisions usually involve large-volume sales at a lower price. This higher output requires the use of more inputs, and those inputs are variable costs.

For example, suppose a car factory sales on average 1,000 cars per month. The factory has the right amount of workers, and uses the right amount of energy, to produce 1,000 cars per month. The next month, a client order 5,000 cars in just one month, and the factory accepts the special-order. Variable costs energy and wages will rise.