Question

please help me solve this

Bush Ino, sells a high tech tool for $1,400. Variable costs are $800 per unit. When a special order arrived from a foreign contractor to buy 44 units at a reduced sales price of $1,000 per unit, there was a discussion among the managers. The controler said that as long as the special price was greater than the variable costs, the sale would contribute to the company's profits and should be accepted as offered. The vice president, however, decided to decline the order. Which of the following statements supports the decision of the vice president? Select one A. The order is not likely to affect the reqular sales. O B. The company is operating at 70 % of its production capacity O C. The variable costs of $800 includes variable costs of packing the product O O D. The company will need to hire additional staff to execute this order. O E. None of the above

Answer 1

The correct option is :D

Explanation: It is always beneficial to the company to accept special orders at a price higher than the variable cost because it generates additional contribution margin. However while taking special order decisions other factors also need to be considered such as whether the company has excess capacity, whether special order affects regular sales. In addition to that company also need to be considered that whether special order required an additional cost which might be greater than the contribution margin. In the given case manager might have considered this fact that additional staff costs are greater than contribution margin from special order.