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Special order and Operating Capacity

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What is a "special order"? Why does whether a company is operating at capacity or has excess capacity matter in deciding whether to accept the special order or not?

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Solution Summary

This solution explains what special order is and why the degree of a companies current operating capacity is important in deciding whether to accept the special order of not. This solution provides not only an in-depth explanation, but includes a clear example to better illustrate the concept.

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A special order is the order received by the company from the foreign market or from the customers the acceptance of which does not affect the present sales in the regular market at a selling price below the normal price of the product in the regular market. The special order can be received from the buyer at a price lesser than the present selling price of the company. If the company is operating at a capacity lesser than the normal capacity of the production process, the company can accept the special order if the ...

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