When There Is an Excess Capacity, It Makes Sense to Accept

question 169

Multiple Choice

When there is an excess capacity, it makes sense to accept a one-time-only special order for less than the current selling price if ________.

• A) incremental revenues exceed incremental costs
• B) additional fixed costs is incurred to accommodate the order
• C) the company placing the order is in the same market segment as your current customers
• D) incremental revenue equals incremental operating income

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Definitions:

Service Department Allocations

The process of distributing the costs of service departments to producing or operating departments based on their usage of services.

Service Department Charge Rate

The rate at which internal service departments charge other parts of the same organization for the services rendered.

Accounting Department

The division within a company responsible for managing financial records, ensuring compliance with accounting standards, and producing financial statements.

Service Department Cost

Involves the expenses associated with the departments that do not directly produce goods but provide support or services to other departments within an organization.