AccountingRevision - Master A-Level Accounting with AI

Decision Making: Special Orders

Scenario: a one-off order at below the normal selling price from a new customer

Decision rule: accept if contribution is positive — fixed costs are already covered by regular sales and are not relevant to this decision

Key conditions to check:

Firm must have spare capacity (if at full capacity, opportunity cost must be considered)
Accepting must not undercut prices for existing customers

Example (firm at 80% capacity):

For/Against considerations:

For accepting	Against accepting
Positive contribution earned	No credit history with new customer
Uses otherwise idle spare capacity	Existing customers may demand same lower price
Potential for future repeat orders	Exchange rate risk if overseas customer
	Contribution may be small relative to risk