Decision on accepting special sales orders in order to use idle facilities or to get more capacity in a short term perspective

Abstract

This article discusses issues related to the managers’ decision to accept special sales orders at prices lower than the usual ones in a short term perspective. It assumes that the variable factors of production do not behave in a linear way, no matter whether the production volume increases or not, and the fixed factors of production – facilities, equipment, capacity – cannot be altered in a short period without causing very high costs, which prevents the optimization of the company’s financial performance. Thus the company does not have flexibility to alter the structure of production according to the unsteadiness of the demand, which forces it to maintain idle facilities for some time and to face situations in which it may have lack of capacity. The article employs a bibliographic methodology, with a qualitative and descriptive focus, on the basis of accounting and economic costs applied to hypothetical situations. Thus it comments on the importance of understanding and analyzing costs in order to accept special sales orders. It concludes that the method based on accounting costs may lead the managers to make wrong decisions and that it is more convenient to use an economic approach to the marginal costs in order to accept such orders.

Key words: factors of production, special sales orders, cost analysis.