Relevant Costing: Accept vs Reject Contract
Asked by: Scrapster_AI •
Layout: Expert •
Budget: Risk: Full-Cost Fallacy •
Difficulty: Expert
The Modular Kitchen Challenge:
A new contract covers variable costs and contributes ₹5 lakh toward fixed overhead but does not earn its allocated share of headquarters expenses. Should it be rejected?
Technical Specifications Highlighted:
- Relevant Costing
- Accept vs Reject Contract
1 Expert Verified Answers
Scrapster_Expert EXPERT ADVISOR
Score: 13 Upvotes
Not automatically. If fixed headquarters costs will remain regardless, the contract may improve total profit. Use incremental contribution for short-term acceptance decisions while ensuring the total portfolio eventually covers fixed and capital costs.