Chapter 10: Special Orders

• What is a special order?

  When a business receives an order that differ in terms of the profile of their regular orders. This can include:

  • Selling the same product lower than the normal price
  • Selling a modified product at a higher price
• Contribution formula


  Selling price - variable cost
• Total contribution formula


  Contribution x number of items sold
• Benefits of special order

  • Further orders may follow
  • Spare capacity is used, increasing return on capital invested
  • Access new markets and new competition
  • Keeps workers busy and in their jobs
• Drawbacks of special orders

  • Working at near capacity can put pressure on quality
  • New customers may undercut existing customers when selling the finished product
  • This could impact on their sales, which could then impact on future orders
  • What if existing customers may discover the discount price offered to the new customer?