Component 2 - Special orders

Question 1

Explain : What is meant by special orders

Answer 1

Special orders refer to a type of order that is outside the normal scope of a company’s operations.

The nature of a special order often requires a business to make changes to its processes or incurs additional costs.

This must be considered when deciding whether to accept the order.

Question 2

What is meant by contribution

Answer 2

Contribution - The amount of revenue that a business generates from a product or service that exceeds the variable costs of producing and selling that product or service.

Question 3

Contribution : Calculate contribution and advise on the accepting of special orders

Answer 3

Contribution can be used to determine whether a special order will be profitable for the business and whether it should be accepted or not.

If the contribution generated from a special order is positive, generally the business should accept the special order, as the business will generate a profit

However there can also be an impact on the business’s existing operations and resources if it accepts the special order.