Special order

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. Of particular concern is that these deals may alter the cost structure of the business for the duration of the order. A thoughtful analysis of the costs associated with a special order may reveal several types of overhead cost that may be incurred specifically because of that order. For example, a second shift production line may need to be started up, which requires manager oversight, an extra quality control person, and a materials handler whose services would not otherwise be needed. Thus, a tight focus on the incremental changes in costs needed to process a special order is essential to ensuring that it is priced appropriately.

Related Courses

Activity-Based Costing
Revenue Management