Special Ordrs Flashcards
What is a special order
Orders for products that differ in profile to regular orders
What can these differences be
1 price paid
2 quantity
3 lead time
What should be considered when deciding if to accept order
1 should consider the potential quantitative and qualitative benefits resulting from the order
What is the contribution -
The difference between the revenue per unit and vairiable cost per unit- because each item sold contributes towards paying other costs of the business eg fixed costs
JUDE LOOK AT EXAMPLES IN BOOK
What factors should be considered before accepting a special order
1 capacity - has the business got spare capacity or is this the best way to use spare capacity
2 labour demands - would the special order be completed in normal hours or would you need to pay workers for extra hours
3 future orders - could this special order lead to more regular orders
4 existing customers - will the special order upset existing customers who pay higher prices
5 product adjustment - would the special order require a product slightly different to the regular product
Positives of accepting a special order
1 further orders may follow- may accept an unprofitable order if possibility of a regular or long term order
2 spare capacity is used increasing return on capital invested
3 new order may access to new markets and new opportunities
4 increasing production can have HRM benefits such as increased wages
5 useful to keep workers. Busy if normal orders are not sufficient - can keep workers in jobs in poor economic conditions
Negatives of accepting special orders
1 working at near capacity can put pressure on quality
2 if existing customers discover discounted price offered to a new customer they may demand same or look for a new supplier
3 will the new customer demand lower prices in the future and be expected to be prioritised over existing customers
4 new customer may undercut existing customers when selling finished product impacting on their sales which could impact on future orders
