Special orders

Question 1

What is a special order?

Answer 1

Businesses may receive orders for their products that differ from regular orders in terms of profile. This difference is often on price paid, quantity ordered or lead time.
These special orders may be a one-off or they could be a new buyer establishing a relationship with the supplier.

Question 2

What is the quantitative measure of a speical order?

Answer 2

First stage in examining the value and impact of special order is to use quantitative measure. Contribution is the difference between revenue per unit and variable cost per unit.

Total contribution = Contribution per item x number of items sold

Question 3

What are qualitative factors that should be considered before accepting a special order?

Answer 3

• Capacity – Does the business have the spare capacity, and if so, is this the best way to use the spare capacity? Does the business need to invest in technology to increase its capacity?
• Labour demands – Would the special order be completed in normal working hours or would extra hours have to be paid for workers? If business requires more workers to work overtime this will come at a higher labour cost per unit.
• Future orders – Could it lead to more regular orders.
• Existing customers – Will the special order upset existing customers who pay a higher price.