Question

Management is considering a one-time-only special order. There is sufficient idle capacity to fill the order without affecting any normal sales. Which one of the following is NOT relevant in making the decision?
A) absorption costing unit product costs
B) variable costs
C) incremental costs
D) differential costs

Answer 1

Answer: A) absorption costing unit product costs

Explanation:

Absorption costing is the costing convention that is used when fixed costs need to be apportioned to the production of goods and services.

When a company has idle capacity, any production done using that idle capacity would incur no fixed costs because the fixed costs for the entire capacity, both idle and non-idle have been covered already as fixed costs are charged on the entire company capacity.

Absorption costing is therefore not relevant here as the company will use its sufficient idle capacity that has already incurred fixed costs.