Q25-15RQ - Horngren'S Financial And Managerial Accounting

Question

When should special pricing orders be accepted?

Step-by-Step Solution

Answer

Answer

Special pricing orders should be accepted when the unit sales price is higher than the variable cost per unit of the related product. 

Step-by-Step Solution Step 1: Meaning of Sales Price

Sales price or selling price refers to the price of a product or service at which it is exchanged with the consumers by the owners of such goods. Sales price includes the cost of production plus the profit margin of the seller.

Step 2: Acceptance of special pricing orders

A business entity should accept special one-time order if the sale price per unit of the product is greater than its variable cost per unit. 

Also, it is beneficial to accept special pricing orders only when it brings an increase in the operating income of the company.