Learn: Advising Whether to Accept a Special Order

Welcome!Building on your prior learning about special orders, contribution, and calculations, this lesson will focus on how to advise whether to accept a special order. Let's get started!

Key Considerations for Special OrdersWhen advising on a special order, businesses need to evaluate whether it is financially beneficial and aligns with their objectives. This involves analysing costs, revenue, capacity, and strategic goals.

Financial FactorsTo determine financial viability, consider the contribution (selling price minus variable costs) from the special order. If the contribution is positive, the order contributes towards fixed costs and profit.

Capacity and Resource FactorsBusinesses must assess whether they have the capacity to fulfil the order without disrupting regular production. This includes evaluating labour, machinery, and raw materials availability.

Strategic ConsiderationsA special order might have non-financial benefits, such as entering a new market, building customer relationships, or clearing excess inventory. However, businesses should avoid orders that could harm regular customers or brand reputation.

Opportunity CostOpportunity cost refers to the benefits lost by choosing one option over another. For special orders, businesses must weigh the potential gains against any sacrifices, such as lost regular sales or alternative uses of resources.

Review Time!Great work! You've explored the key factors for advising on special orders, including financial, capacity, strategic, and opportunity cost considerations. Let's test your understanding!