What is special order decision?

Special-order decisions involve situations in which management must decide whether to accept unusual customer orders. These orders typically require special processing or involve a request for a low price.

How do you decide to accept a special order?

The general rule is to accept a special order if the benefits exceed costs. Otherwise, turn down respectfully. If the business has excess capacity to fill the special order, it would accept if incremental sales revenue exceeds incremental variable costs.

What is the first factor to be considered for special orders?

When deciding whether to accept a special order, management must consider several factors: The capacity required to fulfill the special order. Whether the price offered by the buyer will cover the cost of producing the products. The role of fixed costs in the analysis.

What is meant by special pricing decisions?

Special order pricing is a technique used to calculate the lowest price of a product or service at which a special order may be accepted and below which a special order should be rejected. Usually a business receives special orders from customers at a price lower than normal.

What is the advantages of accepting special order?

Get ready for this: You can accept a lower sales price for a special order and still be profitable. The fixed costs have already been paid for with earlier production. They are past (sunk) costs, so you do not need to worry about covering them with your special-order revenue.

Which is an advantage of a special order?

Another benefit to special ordering furniture is that a special order doesn’t result in a significant price change. In many cases, a special order will result in the same price or sometimes slightly lower than the store price, depending on your order.

What reason would you give the manager as to why special order decisions should be made using variable costing?

Variable costing illustrates the impact that discontinuing a product has on all costs related to production. When considering variable costing, managers logically see that keeping a particular unit in production helps absorb fixed costs and maintain overall profitability.

What is a special order business?

A special order is any customer order for goods or services that is not routinely handled by a business. A thoughtful analysis of the costs associated with a special order may reveal several types of overhead cost that may be incurred specifically because of that order.

How do you price a special order?

Use the contribution margin approach to calculate if the job will generate profit or loss:

1. Calculate the contribution margin per unit.
2. Calculate the total contribution margin.
3. Subtract any incremental fixed costs from the contribution margin to determine profit or loss.
4. Determine if you should accept the job.

What are some of the qualitative issues that a special order can create?

b. Qualitative factors that can influence a special order decision are the special order’s impact on sales to regular customers, its potential to lead the company into new sales areas, and the customer’s ability to maintain an ongoing relationship that includes good ordering and paying practices.

What are special orders?

A Special Order transaction is typically performed when a customer wants to purchase an item that is not currently available in the store. The item may be out of stock or unavailable for any reason. A special order item may be any saleable item from the store’s inventory.

When should a special order be accepted quizlet?

A special one-time order is acceptable if the unit sales price is greater than the unit variable cost. Max Company has excess capacity. A customer proposes to buy 400 widgets at a special unit price even though the price is less than the unit variable cost to manufacture the item.