ECONOMICS

Detailed explanation-1: -Profit germinates when incremental sales are greater thanincremental costs. Ergo, the lowest price for a special sales order shall be theincremental cost of producing the order.

Detailed explanation-2: -The correct answer is option (B). The direct method methods of cost allocation is completed by taking the service flows to production departments only and determining each production department’s share of that service.

Detailed explanation-3: -Costs are broadly classified into four types: fixed cost, variable cost, direct cost, and indirect cost.

Detailed explanation-4: -The direct method of cost allocation is the most popular method used for allocating costs. This method allocates all the service department costs to the production department and does not take into account that the service department offers services to other departments.