Question

M&H Ltd. has sufficient capacity to fill an order at a special price below its usual price. The special price exceeds its variable costs. What non-financial factors should also be considered in the decision?

Is there the potential for additional sales to the customer in the future?

How will existing customers respond if they find out about the special price?

If there is the potential for additional sales to the customer in the future, can a higher price be charged?

All of the above.

Answer 1

IN CASE IF A COMPANY HAS SUFFICIENT CAPACITY TO FILL AN ORDER AT A SPECIAL PRICE BELOW ITS USUAL PRICE AND COMPANT'S CAPACITY WILL BE UNUTILISED IF SPECIAL ORDER IS NOT ACCEPTED, COMPANY SHOULD ALWAYS ACCEPT THIS TYPE OF SPECIAL ORDER BECAUSE COMPANY IS RECOVERING IT'S RELEVANT COST BY ACCEPTING THIS ORDER I.E. VARIABLE COSTS AS FIXED COSTS ARE SUNK OR IRRELAVENT COSTS.

WHILE ACCEPTING SAME, COMPANY SHOULD ALSO THINK ABOUT SOME NON FINANCIAL FACTORS SUCH AS REACTION OF EXISTING CUSTOMERS, FUTURE POTENTIAL FOR THE SALES IF ANOTHER OFFERS COMES WITH DIFFERENT PRICE, ETC.

WE CAN SAY THAT ALL OF THE ABOVE IS CORRECT ANSWER