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If a Firm Has No Extra Capacity and a Customer

question 109

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If a firm has no extra capacity and a customer asks for a special order, what price is acceptable (assuming there are no relevant qualitative factors) ?


Definitions:

Revenue Recognition

Revenue recognition is an accounting principle determining when revenue is earned and can be recorded in the financial statements.

Transaction Price

The price at which a particular transaction is made, affecting the exchange of goods or services between two parties.

Non-current Assets

Assets not expected to be converted into cash, sold, or consumed within one year or the operating cycle, such as property, plant, and equipment.

Long-term Prepayment

Payments made in advance for goods or services to be received or used in future periods, extending beyond the current accounting year.

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