Economics · Decision Making
A specialized engineering firm has received a one-time special order for 1,000 units from a foreign buyer. The normal selling price is 500 per unit, and the variable cost is 300 per unit. The firm is currently operating at 70 percent capacity and has sufficient idle capacity to fulfill this order. If the foreign buyer offers 320 per unit, and accepting the order involves an additional one-time shipping insurance cost of 5,000, what should be the decision based on marginal costing principles?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Reject the order because it does not cover a proportionate share of fixed costs.
- 2Accept the order as it results in an incremental profit of 20,000.
- 3Accept the order as it provides a net incremental profit of 15,000.✓
- 4Reject the order as the price is much lower than the normal selling price.
Correct answer
Accept the order as it provides a net incremental profit of 15,000.
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