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Beyond the arithmetic, what risk does accepting a special order at a reduced price carry?
AVariable costs per unit will rise on the new order
BRegular customers may demand the same lower price
CFixed costs will have to be reallocated across units
DThe tariff will be charged twice on the same batch
Answer & Solution
Correct answer: B. Regular customers may demand the same lower price
1. Special order pricing carries consequences that the arithmetic does not capture.
2. Existing customers may learn that a new customer is paying less for the same product.
3. They may then demand a matching price or take their business elsewhere.
4. Filling special orders can also cut demand for the product at its normal price, lowering overall income.
5. Variable cost per unit and the tariff are already inside the calculation, so neither is the hidden risk.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 9.7 Accept Business at Reduced Price_
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