What is a Special Order?

A special order is any customer order for goods or services that is not routinely handled by a business. Since a business has little experience with these orders, it probably has only a modest understanding of the costs that it will incur. Of particular concern is that these deals may alter the cost structure of the business for the duration of the order. A thoughtful analysis of the costs associated with a special order may reveal several types of overhead cost that may be incurred specifically because of that order. Here are several examples of the extra costs associated with special orders:

A financial analyst may have to be involved in calculating whether the price point requested by the customer will be profitable for the company.
A senior manager may have to sign off on the decision.
The product design staff may have to create a new product design.
The materials management staff may have to be brought in to purchase special raw materials and components for the order.
A second shift production line may need to be started up, which requires manager oversight, an extra quality control person, and a materials handler whose services would not otherwise be needed.

Thus, a tight focus on the incremental changes in costs needed to process a special order is essential to ensuring that it is priced appropriately.

Given the costing complexities associated with special orders, some businesses refuse to accept these types of orders. They may even refer these orders to a competitor, in hopes that the competitor will lose money on them.