Managers should accept special orders if the special-order price:

• A. is less than the fixed cost of the business
• B. is greater than the variable cost of producing the order
• C. is lower than the average market price for the product
• D. equals the total cost of all previous orders

Answer: (B)

Verified step by step guidance

1. Understand the nature of special orders: these are one-time orders that do not affect the regular sales volume and often come at a different price than the usual market price.
2. Identify the relevant costs for decision-making: fixed costs are sunk in the short run and do not change with the special order, so they are not relevant for accepting or rejecting the order.
3. Focus on variable costs, which change with the production of the special order. The key is to determine if the special-order price covers the additional variable cost incurred by producing the order.
4. Formulate the decision rule: accept the special order if the special-order price is greater than the variable cost per unit, because this means the order contributes positively to covering fixed costs and potentially increasing profit.
5. Recognize that comparing the special-order price to average market price or total cost of previous orders is not the correct criterion, since those do not directly reflect the incremental cost and benefit of the special order.