How do you determine whether to accept a price offer that is below normal selling price?

• A. If the offer is below cost, always accept to fill capacity.
• B. Check incremental contribution: if incremental revenue minus incremental cost is positive and no adverse long-term effects.
• C. Only consider the short-term impact on cash.
• D. Always reject any price below normal price.

Answer: (B)

When deciding whether to accept a price offer below the normal selling price, use incremental analysis. Is the extra revenue from the order enough to cover the additional costs of fulfilling it? If the incremental contribution (incremental revenue minus incremental cost) is positive and there are no adverse long‑term effects on demand, pricing expectations, or customer relationships, the offer should be accepted because it adds to overall profitability. This approach also recognizes that capacity may be idle; even then, the marginal sale should improve profit as long as the long-term impact is manageable.

Focusing only on short-term cash or on rejecting anything below the normal price misses the real picture of profitability. Similarly, accepting any offer below cost erodes value unless there’s a strategic reason or offsetting long-term benefits.