Special orders
Occasionally, businesses might receive orders for their products that differ in terms of the profile of
their regular orders. The difference is often based on price paid, the quantity ordered or the lead
time.
A special order can involve:
Selling the same product lower than the normal sales price.
Selling a modified product as a higher price.
To see whether a business should accept the special order, you should:
Find contribution per unit (SP – VC).
Find total contribution – (total contribution = contribution per unit * number of items sold
(quantity))
Total contribution = ((SP – VC) * Q).
If there is a positive contribution, the business should accept the order.
However, other factors have to be considered:
capacity – space to store special orders.
Labour demand – extra staff to produce the large quantity of goods or staff with experience
to produce the good, are staff overworked?
Future orders – loyal consumers.
Existing consumers
Product adjustment – do you need more machinery, tools, etc.
How quick consumers want the order.
Advantages of accepting the order:
Further orders may follow.
Spare capacity is used.
New order may give access to new markets.
Workers are kept busy.
Good image for the business.
Disadvantages of accepting the order:
Pressure on staff.
Quality issues.
Existing customers response.
Lack of time for other aspects such as training.
Occasionally, businesses might receive orders for their products that differ in terms of the profile of
their regular orders. The difference is often based on price paid, the quantity ordered or the lead
time.
A special order can involve:
Selling the same product lower than the normal sales price.
Selling a modified product as a higher price.
To see whether a business should accept the special order, you should:
Find contribution per unit (SP – VC).
Find total contribution – (total contribution = contribution per unit * number of items sold
(quantity))
Total contribution = ((SP – VC) * Q).
If there is a positive contribution, the business should accept the order.
However, other factors have to be considered:
capacity – space to store special orders.
Labour demand – extra staff to produce the large quantity of goods or staff with experience
to produce the good, are staff overworked?
Future orders – loyal consumers.
Existing consumers
Product adjustment – do you need more machinery, tools, etc.
How quick consumers want the order.
Advantages of accepting the order:
Further orders may follow.
Spare capacity is used.
New order may give access to new markets.
Workers are kept busy.
Good image for the business.
Disadvantages of accepting the order:
Pressure on staff.
Quality issues.
Existing customers response.
Lack of time for other aspects such as training.
