Special-order decision

Special-order decision evaluates a one-time order at a below-normal price. It is accepted when incremental revenue exceeds incremental costs and spare capacity exists, since fixed costs are already covered.

Also known asspecial order decision

ByHoang TruongUpdated June 30, 2026

FrameworkRelevant costing

See it move

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A bar representing the special-order price of €85 per unit is split into two portions: variable cost at €70 and a resulting contribution margin of €15. At 200 units the €15 contribution generates €3,000 of additional profit. A note attached to the diagram instructs that existing fixed overhead should not be allocated to the order — those costs are already covered by regular production and remain unchanged regardless of the decision, making them irrelevant to the accept-or-reject calculation.

Where it fits

SubjectCost AccountingAdvancedTopicRelevant Costs & Decision-MakingAdvanced

The formula

LaTeX

\Delta\pi = (P_{\text{special}} - VC) \times Q_{\text{order}}

Variables

$P_{s} p ec ia l$: Offer price per unit in the special order (€/unit)
$V C$: Variable cost per unit (€/unit)
$Q_{o} r d er$: Units in the special order

Accept when incremental profit > 0 and spare capacity exists. Fixed costs are already covered by regular production and are excluded.

Check yourself

PracticeCORE

Vega SA produces chairs at a regular price of €120. Variable manufacturing cost is €70 per unit and fixed manufacturing overhead allocated per unit is €30. Vega has idle capacity. A buyer offers €85 per unit for a one-off order of 200 chairs. Which analysis is correct?

Select an answer to check your understanding.