BUSINESS ADMINISTRATION
ACCOUNTING FOR MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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has no role in segregating special and regular customers
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must involve unused plant capacity to avoid lost profits on regularly priced items
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allows a company to sell products at prices that only cover fixed costs
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involves selling products at a percentage over retail price due to the short time period involved
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Detailed explanation-1: -D) Differential costs is considered as relevant because in one-time-only special order because this cost will be incurred due to the choosing one order from two or more vdifferent alternatives and affects the decision.
Detailed explanation-2: -Correct Answer: Option a. Only unavoidable costs are relevant. Fixed costs have to be incurred whether or not decisions are made. Sunk costs cannot be recovered and hence irrelevant.
Detailed explanation-3: -Qualitative factors that can influence a special order decision are the special order’s impact on sales to regular customers, its potential to lead the company into new sales areas, and the customer’s ability to maintain an ongoing relationship that includes good ordering and paying practices.