Component 2: Special orders — Eduqas A-Level Business
Test yourself on Component 2: Special orders with EDUQAS A-Level practice questions.
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Component 2: Special orders explained
It is a one-off request to supply at a price below the normal selling price, often from a large retailer or an overseas buyer, and usually for a quantity the firm can make with capacity it already has.
Read the full explanation
The idea matters because full-cost thinking would reject it out of hand: the offered price may sit below total cost per unit. The relevant test is contribution, since fixed costs are already covered by existing sales, so any price above variable cost per unit adds to profit. The judgement is never purely arithmetic. Accepting can fill idle machinery, spread fixed costs and open a new market, yet it can also anger regular customers paying more, set a price precedent the buyer will expect next time, and tie up capacity that full-price work might have used.
Calculate contribution and advise on the appropriateness or otherwise of accepting special orders
Contribution per unit is selling price minus variable cost per unit, and total contribution is that figure multiplied by the units ordered; it is measured in pounds and it is what the work adds towards fixed costs and profit. If the offered price beats variable cost per unit the total is positive, and with genuine spare capacity and unchanged fixed costs profit rises by exactly that amount. Check for extra costs the job drags in, such as overtime, delivery or bespoke packaging, because those behave as variable costs in this decision. Then look past the number: whether accepting displaces full-price work, whether regular customers will discover the discount, and whether the buyer will treat it as the new normal. A positive figure is a reason to consider the job, not a reason to accept it.
Your focus
- Explain what is meant by special orders
- Calculate contribution and advise on the appropriateness or otherwise of accepting special orders
Component 2: Special orders exam tips
Marking Points
- Definition that the order is a one-off at a price below the usual selling price, typically for a bulk quantity.
- Recognition that it is normally worth considering only when spare capacity exists, so existing output is not displaced.
- The point that fixed costs are already met by normal trading, which is why the decision turns on contribution rather than full cost.
- A named consequence beyond the profit figure, such as the reaction of existing customers or the precedent set on price.
- Contribution per unit calculated as selling price less variable cost per unit, with the answer given in pounds per unit.
- Total contribution shown as contribution per unit multiplied by the quantity, with the statement that profit rises by this amount when fixed costs do not change.
- Any additional costs triggered by the job treated as variable and deducted before advice is offered.
- Advice that weighs the money gained against capacity, customer reaction and the precedent on price, and then reaches a decision.
Examiner Tips
- 💡Definition questions carry few marks, so give the meaning in a sentence and add a brief example rather than writing a page.
- 💡The term almost always returns later in the same paper inside a calculation, so define it in the language you will need there, namely contribution and spare capacity.
- 💡Naming a plausible buyer, such as a supermarket ordering own-label stock, shows understanding quickly.
- 💡Set the working out in labelled lines so method marks can be awarded even if a figure is misread from the table.
- 💡The advice element is marked on judgement, so finish with a clear yes or no and the main risk attached to it.
- 💡If the stem says the factory is already at full capacity, the opportunity cost of lost full-price sales must enter the answer.
Common Mistakes
- Confusing it with a general price cut offered to every customer.
- Assuming any order priced below total cost per unit must automatically be refused.
- Ignoring capacity, and accepting work the firm could only fulfil by turning away full-price orders.
- Deducting a share of fixed costs, or the full cost per unit, so a profitable job appears to make a loss.
- Working out contribution per unit and then forgetting to multiply by the quantity ordered.
- Advising acceptance purely because the figure is positive, with no check on whether the factory has room to make it.