Question

Accepting a special order will improve overall net operating income if the revenue from the special order exceeds:

a. the contribution margin on the order.
b. the incremental costs associated with the order.
c. the variable costs associated with the order.
d. the sunk costs associated with the order.

Answer 1

Answer:

The answer is B.

Explanation:

Incremental cost is the extra cost associated with producing one additional unit of production. Incremental cost is the same as marginal cost. incremental cost is a relevant cost.

When making a business decision, only relevant costs are considered. Sunk cost are not considered. Sunk cost had already been incurred and can never be recovered.