Special Orders Flashcards
What is special order costing?
Special order costing refers to the process businesses use to evaluate unexpected orders from new customers or for new products, determining whether to accept them based on profitability.
What factors are considered before accepting special orders?
Qualitative factors such as capacity, labour demands, future orders, existing customers, product adjustment, current utilisation, and retaining customer loyalty.
What does capacity refer to in special order costing?
Capacity refers to whether the business has the space and resources to accommodate the new order or if it’s the best way to utilise spare capacity.
Why might a business accept an unprofitable special order?
A business might accept an unprofitable special order to potentially lead to future profitable orders, utilize spare capacity, access new markets, or keep workers busy.
What are the arguments for declining a special order?
Arguments include pressure on quality due to full capacity, potential resentment from existing customers, risk of new customers demanding lower prices, and possible negative impacts on existing customer sales.
How can accepting a special order affect existing customers?
Existing customers may become resentful if they discover the new customer received a discounted price, potentially leading them to seek new suppliers.
What HRM benefits can arise from increasing production through special orders?
Increasing production can lead to benefits such as increased wages for workers and payment of bonuses.
