Questions: Canosta, Inc. has determined that it must expand its capacity to accept a special order. Which situation is likely? - Unit variable costs will increase. - The company should accept the order. - Fixed costs will not be relevant. - Both variable and fixed costs will be relevant.

The answer is the last one: Both variable and fixed costs will be relevant.

Explanation for each option:

• Unit variable costs will increase.
  This is not necessarily true. While expanding capacity might lead to increased variable costs due to higher production levels, it doesn't automatically mean that the unit variable costs will increase. Economies of scale could potentially decrease unit variable costs.

• The company should accept the order.
  This is not a definitive answer. Whether the company should accept the order depends on a detailed cost-benefit analysis, including the impact on both variable and fixed costs, potential revenue, and strategic considerations.

• Fixed costs will not be relevant.
  This is incorrect. When expanding capacity, fixed costs often become relevant because the company might need to invest in new equipment, facilities, or other resources that increase fixed costs.

• Both variable and fixed costs will be relevant.
  This is correct. When expanding capacity, both variable and fixed costs are relevant because the company needs to consider the additional costs associated with producing more units (variable costs) and any new investments or changes in fixed costs required to increase capacity.

In summary, when expanding capacity to accept a special order, both variable and fixed costs are relevant considerations.