Should you take a one-off order at a lower price?
A price below full cost can still add profit when there is spare capacity. Work out what a one-off order adds, counting only the costs that change.
Larkfield Candles can make 2,500 candles a month and expects to sell 2,000 at £15 each. A candle has a variable cost of £6, and fixed costs are £13,500 a month.
A hotel offers to buy 400 candles at £10 each, once only. With the fixed costs spread over 2,000 candles, a candle's full cost is £12.75. So the offer looks like a loss.
But the fixed costs are paid whether the order is taken or not. With spare capacity, only the variable costs rise. If the price is more than the variable cost, the order adds to profit.
You sort items into the right place and work out a figure.
You work out a figure and tick every answer that applies.