Special Orders & Opportunity costs

Question 1

What is the only relevant information of decision making? (4)

Answer 1

• incremental revenue/ costs
• opportunity costs
• avoidable costs
• qualitative factors

Question 2

What is the definition of a qualitative factor for decision making and what are 2 examples?

Answer 2

• something that is not easily expressed in monetary terms.

e.g) quality of product
& stability of quoted price

Question 3

what is an unavoidable cost?

Answer 3

cost incurred regardless of decision made

Question 4

what is a sunk cost ?

Answer 4

past costs, already incurred and can no be affected by future action.

Question 5

what 4 things needs to be considered in the make or buy decision ?

Answer 5

variable costs to make, cost to buy, relevant fixed costs & revenue per unit.

Question 6

What is the quantitative analysis calculation to decide whether to accept a special order ? (6 step)

Answer 6

selling price 
- variable cost
= incremental CM$pu
x volume 
= total incremental CM 
- incremental fixed costs
= increased contribution to profits

Question 7

What is the opportunity cost calculation of accepting a special order ?

Answer 7

selling price 
- variable cost
= CM
x volume 
= lost contribution margin

Question 8

How to find net loss if the order is accepted ?

Answer 8

CM of order

- lost cont margin

Question 9

what qualitative factors should be considered when deciding to accept a special order ? name 3

Answer 9

• opportunity cost
• impact on exisiting customers
• could it lead to future orders