# How do you find a special order?

Table of Contents

## How do you find a special order?

Calculate the contribution margin (price – variable costs) per unit for the special order. Exclude irrelevant costs from the calculation. Multiply the number of units in the special order by the contribution margin per unit. If there are any incremental fixed costs, subtract those costs from the contribution margin.

## What are order items?

An order item is a line of an order. It includes the quantity and shipping details of a bought offer.

## In what scenario would a special order be accepted?

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 are special order decisions?

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.

## What would be the consequences of accepting both special orders?

Accepting both special orders would increase the income of Waterways by \$4,350. However, it will result to a negative effect to the production of Waterways because by just accepting the Canadian Company’s order, it will already reach their full capacity of production.

## What relevant information would you need to make a decision to accept business at a special price?

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.
• Qualitative factors.

## What will be the impact on BEP if variable costs are reduced?

The contribution margin will increase if there is a reduction in variable costs and expenses per unit. For example, if a car company can obtain components at a reduced cost, the variable costs decrease. The reduced variable costs means that the contribution margin increased.

## What data are relevant in deciding whether to accept an order at a special price?

The relevant information in accepting an order at a special price is the difference between the variable manufacturing costs to produce the special order and expected revenues. Any changes in fixed costs, opportunity cost, or other incremental costs or savings (such as additional shipping) should be considered.

## Which of the following will never be a relevant cost?

Terms in this set (10) Which of the following will never be a relevant cost? sunk cost.

## What is the general decision rule used to sell or process a product further?

What is the decision rule in deciding whether to sell a product or process it further? If the increase in sales exceeds the increase in costs, then the product should be processed further.

## What is the rule for whether to sell or process materials further?

The decision rule for whether to sell or process materials further is: Process further as long as the incremental revenue from processing exceeds the incremental processing costs. Analyze the relevant costs to be considered in repairing, retaining, or replacing equipment.

## Which product or products should be sold at the split-off point?

Which product(s) should be sold at the split-off point? Answer: A product should be sold at the split-off point if there is not any incremental profit from processing the product further. As long as the process as a whole is profitable, it is irrelevant if an individual product is not profitable.

## What costs are irrelevant for a decision as to whether to sell a product or process it further?

Irrelevant costs are those that will not change in the future when you make one decision versus another. Examples of irrelevant costs are sunk costs, committed costs, or overheads as these cannot be avoided.

## Which is usually considered irrelevant in sell or process further decision making?

Joint costs are irrelevant for your “sell or process further” decision. Those costs are the same, whether you sell the product at splitoff or process further. In this case, joint costs are sunk or past costs.

## Should product a be sold immediately or sold after processing further?

Product 1 should be sold at split-off point. The increase in sales revenue amounting to \$66,000 (i.e., from \$24,000 to \$90,000) is less than the costs to process the product further (\$72,000). Hence, it is better to sell the product at split-off point than process it further.