Question

Which of the following is correct with regard to​ short-term decision​ making?

A.

When a manufacturer outsources production of a part used in its production​ process, the manufacturer will typically eliminate all fixed manufacturing costs.

B.

In a​ keep/drop decision, if all of a​ company’s fixed costs are​ common, a​ segment’s segment margin will be less than its contribution margin

C.

If a company has sufficient excess capacity to fully fill a special​ order, the company will need to give up regular sales if they accept the special order.

D.

A company having few competitors would typically use target costing in its pricing approach.

E.

The effect on current and future customer relationships should be considered when deciding whether to accept or reject a special order.

Answer 1

Solution:

The correct statement regarding short term decision making is "The effect on current and future customer relationships should be considered when deciding whether to accept or reject a special order." because for short term we may earn some profit by accepting the special order, however in long term it may impact sustainability of exisitng customers and result in huge losses by decreasing sales price for regular customers.

Hence option E is correct.