As a rule, the order is to be accepted if the benefit exceeds the costs. If the Company is operating at less than its maximum capacity and has sufficient capacity to produce and fulfill the special order, the order must be accepted if the additional sales exceed the additional variable costs.
How do you decide whether or not to accept a special order?
In deciding whether or not to accept a special order, management must consider several factors:
- The capacity required to fulfill the special order.
- If the price offered by the buyer covers the cost of manufacturing the products.
- The role of fixed costs in the analysis.
- Qualitative factors.
What is a special order decision?
Special order decisions involve situations where management must decide whether or not to accept unusual orders from customers. These orders usually require special handling or are associated with a low cost demand.
In a one-time special order decision, a company can ignore fixed costs because?
You exclude the fixed costs of your special order as these are already covered by your regular sales. However, an $8 unit price would not cover the full cost of the product in normal production. Always think of the fixed costs in dollars.
What are special pricing rules?
Special order pricing is a technique for calculating the lowest price of a product or service at which a special order can be accepted and below which a special order must be rejected. Usually, a company receives special orders from customers at a lower price than normal.
What data is relevant for the decision to accept an order at a special price?
The difference between the variable production costs for the production of the special order and the expected proceeds is decisive for the acceptance of an order at a special price. Any changes in fixed costs, opportunity costs or other additional costs or savings (e.g. additional delivery costs) must be taken into account.
How do you calculate the price for a special order?
Calculate the Contribution Margin (Price – Variable Cost) per unit for the special order. Exclude irrelevant costs from the calculation. Multiply the quantity of the special order by the contribution margin per piece. If there are additional fixed costs, deduct these costs from the contribution margin.
How do you handle special orders in accounting?
Calculate the Contribution Margin (Price – Variable Cost) per unit for the special order. Exclude irrelevant costs from the calculation. Multiply the quantity of the special order by the contribution margin per piece. If there are additional fixed costs, deduct these costs from the contribution margin.
What are make-or-buy decisions?
A make-or-buy decision is an act of choosing between making a product in-house or purchasing it from an outside supplier. Take-or-buy decisions, like outsourcing decisions, make a case for comparing the costs and benefits of producing in-house versus buying elsewhere.
When deciding to buy a new computer, all of the following should be considered, except?
Calculate price
< td> In Manufacturing When deciding to buy a new computer, all of the following should be considered, except:
| Production overhead underrun occurs when: | actual overhead is greater than allocated overhead |
|---|---|
| Sunk Cost |
Should managers consider when making manufacturing or purchasing decisions?
Choice (a) is correct because when making manufacturing or purchasing decisions, managers will consider any other use of the asset to determine any cost benefits and incorporate them into the design.