What is special order decision?
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 is a special order in accounting?
A special order is any customer order for goods or services that is not routinely handled by a business. Since a business has little experience with these orders, it probably has only a modest understanding of the costs that it will incur.
What factors must any company consider before accepting a special order contract?
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.
How do you do a special order?
1:015:52Special Orders – YouTubeYouTube
How are special order decisions calculated?
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. If there are no incremental fixed costs, the contribution margin is all profit.
When evaluating a short term special order management should?
When evaluating a special order, management should: Only accept the order if the incremental revenue exceeds all product costs.
What must be true for a company to accept a special order?
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.
When should a special order should 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.
When deciding if a special order should be accepted?
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.
What two important assumptions must be considered when evaluating special order scenarios?
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.
Why do companies accept special orders?
These special orders are in addition to the planned production. Therefore, fixed overhead would not be applied to these jobs. This allows the company to make the products needed for the special order at a reduced cost. Although the price might be lower, the company may be able to achieve profit on the job.
What to consider before accepting a special order?
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.