Sample Critical Thinking On Special Orders

On a cold Monday morning, the secretary enters my office with several papers. She has an expression of happiness on her face, an indication that something good had happened. Despite being a Monday morning, I was feeling rather tired and therefore needed enough rest after a very eventful weekend. The expression of happiness on the secretary’s face implied that there was a lot of work to be done; a request for an order that would bring in some good profit. Having spent the entire weekend in Miami celebrating the company’s quarter results improvement, I needed a slow moving day with minimal work pressure. The company had paid for the management employees a weekend trip to spend time in the city park carrying out team building activities and strategizing for the years ahead. As such, my mind was not so fresh to handle lots of paperwork. Nonetheless, the secretary’s excitement cheered me up and motivated me to handle the work taking into consideration the objectives discussed during the weekend at the park.
As she placed these documents on the table, she explained the content carefully. Though I was feeling tired and worn out, something seemed interesting about these documents. This was a special order from a client. In case you might wonder what a special order is, it is a one-time order from a client that requires a company to produce a large quantity of products but at a low price. In such a kind of order, the management always needs to make consideration on whether the cost implications and the profit are relevant. Using relevant information, the management can either decide to decline the order or accept it. As I looked at this paper while listening to the secretary, I was wondering whether this is a worthy investment.
A careful analysis is always necessary when thinking of taking a special order or not. One of the things that one needs to consider before taking a special order is the issue of the fixed cost. Ideally, the manager should assume that the fixed costs are being covered by the normal production (Lal, 180). The assumption is always that once you have accepted the order and already processed the special order, then the revenue will automatically cover the fixed cost. Secondly, one should also consider the capacity of the company. When processing a special order, one needs to be certain that the company has excess capacity. This is to say that the company should have the capability of performing the work. The issue of lower cost always sets in when considering a special order. Though the prices are lower, one should be certain that there are profits that come with the production. The concept is always that the fixed costs are always covered by the past production, and thus the low cost must give some profit. Lastly, one should consider the variable cost. Ideally variable costs are usually calculated within the special order. Any special order will always consider the viable cost (Kinney, 80).
As the secretary, Miss Kemble slammed the door while walking out; I was left to ponder upon all these issues. I had to look critically at the relevance of this order and see if there is any profit in it. Thinking through all this thing is not simply a thing of few minutes but rather hours. As the day progressed, I decided that I had to work on this order. Ideally, the client’s request was that the company produces for them T-shirts for their sports day activity. This required me to make calculations and serious consideration.
The first thing that I had to do was to make the calculations to see the relevance of this order. With this table, I quickly calculated what I needed to do.
After looking at the production rate and the cost of the company, I had to look at what the client was offering. Ideally the client was requesting the company to produce 50,000 T-shirts at a cost of $8 per T-shirt. Considering the fact that there was excess capacity to produce more T-shirts there was nothing that could make me reject the order. This was ideally what the client was to offer.
With this in mind, I quickly realized that there were profits to be incurred on the order. First the fixed cost had already been covered by my previous productions and thus I needed not to worry about it. At the same time, the variable cost still remained constant. Despite the fact that the price of each T-shirt was lower the overall production was to give the company $50,000 in terms of profit. Ideally anything above $7 was to give the company some profits and I did not see any reason to reject the offer. Worth mentioning is the fact that this was only a one-time order. The 50,000 units are not part of the normal company production. The units that I should have produced in the normal order could have incurred a fixed cost, but this is not the case with the special order. In the normal production, the $8 price could have covered the normal cost of production (Boyd, 210).
With all this consideration in mind, it was now time to make a decision. Ideally, such things require a fully informed decision since it is a huge investment for the company. Though the profits might be attractive, the full implications of doing the business are a thing that should be well thought of. There is the issue of time and labor that also needs to be covered. Nonetheless, any production company always focused its efforts on the profits that come with any business, and this is the major goal of the company. In this case, there was already the capacity to make more production and at the same time there were profits to be incurred.
After hours of thinking and brainstorming, I finally arrived at the decision of accepting the special order. I took the phone from the table and rang the secretary. She quickly came into the office, and I handed her the acceptance letter that she had to typeset and print. After 30 minutes, she was back in my office ready with the letter. After I had read it,and confirmed that it did not have any typos I asked her to call the office messenger. It did not take 10 minutes, and Mr. Danny was already on the road taking the latter to the client. After some phone deliberation, we agreed with the client and the only thing remaining was to produce the T-shirts.
Just as expected the venture was productive, and the company got $50,000 in profits. This was a plus for the company since once again that year; I topped amongst the manager that had performed well. I thanked this to that Monday that seemed tiring.

Works Cited

Boyd, Ken.Cost Accounting for Dummies. Hoboken, N.J: Wiley, 2013. Internet resource.
Kinney, Michael R, and Cecily A. Raiborn. Cost Accounting: Foundations and Evolutions. Cincinnati: South-Western Cengage Learning, 2013. Print.
Lal, Jawahar, and Seema Srivastava. Cost Accounting. New Delhi: Tata McGraw-Hill, 2009. Print.