special orders Flashcards
1
Q
what is a special order
A
A special order is an unexpected, one-off order from a new or existing customer, often at a discounted price.
2
Q
How do businesses evaluate the financial viability of a special order?
A
- Revenue = Selling price × quantity.
- Variable costs = Cost per unit × quantity.
- Contribution = Revenue – Variable costs.
- A positive contribution means the order can help cover fixed costs and may be accepted.
3
Q
Why might a business accept a special order even if it is not highly profitable?
A
- future relations and orders
- access to new markets
- utilises spare capacity
4
Q
why might a business reject special orders
A
- may affect existing quality
- regular customers may demand same discount
- ## new customers may expect same discount
4
Q
why is capacity important in decisions
A
- Business must assess if it has the space, equipment, and resources.
- If already at full capacity, existing customers may suffer.
- If idle capacity exists, the special order may improve efficiency.
5
Q
How do labour demands affect special order decisions?
A
- Can the order be completed within normal working hours?
- Would overtime or new hiring be required, increasing costs?
6
Q
How can special orders impact future business opportunities?
A
- Can create new market access (e.g., export opportunities).
- May lead to repeat orders and long-term profitability.
- Could help establish relationships with key customers.
7
Q
How might existing customers react to a business accepting a special order?
A
- If they find out about a lower price, they may demand the same.
- Long-term customers may feel undervalued and switch suppliers.
- A business might need to justify or hide special order pricing.
8
Q
Why might a special order require changes to production?
A
- Customer may request modifications to the standard product.
- May require new materials, additional training, or process changes.
- Could increase costs beyond what is expected.
9
Q
Why might a business accept an unprofitable special order?
A
- To maintain goodwill with a loyal customer.
- Helps build trust and long-term business relationships.
- A customer may offer better deals in the future.
