Question

What questions should managers answer when considering special pricing orders?

Short answer

Answer

Managers must consider several factors, such as capacity required, qualitative factors, fixed costs, and more, before considering special pricing orders.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Special Orders

Special orders refer to orders placed at lower prices to a business entity. Such orders are generally awarded for a short period of time; and in the short term, do not affect the normal sale of the business.

Questions managers should answer when considering special pricing orders

Managers are required to consider the following points when making decisions associated with special orders:

• Capacity required for the fulfillment of special ordersmust be considered.
• Managers should check whether the price offered by the buyer covers the cost of production.
• Fixed costs’ role should be properly analyzed to determine the appropriateness of special pricing orders.
• In addition, other qualitative factorsshould also be considered while concluding the analysis.