How are the fixed costs of production treated in determining whether or not to a

Question

How are the fixed costs of production treated in determining whether or not to accept a special order?
a. They are increased in proportion to the amount production increases when the special order is accepted.
b. They are considered relevant only when the plant is operating at less than capacity.
c. If the order can be completed without incurring additional fixed costs, they are not relevant.
d. They are never relevant in the decision.



If a company has fixed costs and is operating above the breakeven point, when sales increase by 15%, profits will
a. increase by less than 15%.
b. increase by 15%.
c. increase by more than 15%.
d. decrease by less than 15%.

Explanation / Answer

b. They are considered relevant only when the plant is operating at less than capacity.

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