Special Orders Flashcards
Define Special orders
This is when businesses need to decide whether to accept orders that are on different terms (birthday, marriage etc.)
What happens to prices on special orders
Prices on special orders are usually lower than normal, but if the contribution is positive, they would generally accept the order.
Formula for Total contribution
Contribution = total sales revenue - total variable costs
Formula for contribution per unit
Contribution per unit = selling price per unit less variable costs per unit
Formula for breakeven point
Breakeven point = fixed costs /contribution per unit
What are the reasons the business should take the order
It makes a profit
Will the special-order lead to future repetitive sales
Will the special order use any spare capacity?
The new order may give access to new markets and
new opportunities
What are the reasons the business shouldn’t take the order
Will the lower price have a knock-on effect on other customers who want a lower price in their orders
Are any alternative orders that are more profitable
Working at near or at full capacity can put pressure on quality.
