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    Special Order Pricing

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    This document summarizes a special order pricing analysis for Widgets from Northwind Traders. The order would lose $150,000 based on costs exceeding revenue, and accepting the bid could cost an additional expected $25,000 long-term from regular customers demanding lower prices. While there is brand dilution risk, renegotiating to a price of $26.75 per unit could make the order acceptable based on quantifiable factors alone.

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    Special Order Pricing

    Uploaded by

    api-3809857
    612 views1 page
    This document summarizes a special order pricing analysis for Widgets from Northwind Traders. The order would lose $150,000 based on costs exceeding revenue, and accepting the bid could cost an additional expected $25,000 long-term from regular customers demanding lower prices. While there is brand dilution risk, renegotiating to a price of $26.75 per unit could make the order acceptable based on quantifiable factors alone.

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    This document summarizes a special order pricing analysis for Widgets from Northwind Traders. The order would lose $150,000 based on costs exceeding revenue, and accepting the bid could cost an additional expected $25,000 long-term from regular customers demanding lower prices. While there is brand dilution risk, renegotiating to a price of $26.75 per unit could make the order acceptable based on quantifiable factors alone.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    612 views1 page

    Special Order Pricing

    Uploaded by

    api-3809857
    This document summarizes a special order pricing analysis for Widgets from Northwind Traders. The order would lose $150,000 based on costs exceeding revenue, and accepting the bid could cost an additional expected $25,000 long-term from regular customers demanding lower prices. While there is brand dilution risk, renegotiating to a price of $26.75 per unit could make the order acceptable based on quantifiable factors alone.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
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    [Company Name]

    Special-Order Pricing
    [Date]

    Gray cells are calculated for you. You do not need to enter anything in them. [Company Name] CONFIDENTIAL

    Product name Widget


    Customer name Northwind Traders
    Salesperson name Robert O'Hara
    Order number 1500
    Time frame of order (< 1 year considered special order) 6 months

    Order information and financial analysis

    Incremental revenue
    Customer bid price per unit $25.00
    Volume (units) requested 100,000

    Incremental costs
    Direct material cost per unit $10.00
    Direct labor cost per unit $15.00
    Variable overhead cost per unit $1.50

    Total incremental revenue $2,500,000


    Less total incremental costs $2,650,000
    Net benefit (cost) of order ($150,000)

    Strategic considerations
    If we accept this bid, could our regular customers start to demand a lower price? Yes
    If line 30 is Yes, what is the probability of regular customers demanding a lower price? 10%
    If line 30 is Yes, can we quantify the impact? Yes
    If line 32 is Yes, what is the potential long-term impact on revenue (not probability weighted)? $250,000
    Expected long-term impact (probability weighted) $25,000

    Subjective considerations
    If we accept this bid, will there be dilution of brand equity? Yes
    [Add other subjective consideration.] No
    [Add other subjective consideration.] No

    Recommendation (based on quantifiable inputs)


    Net impact on operating margin ($175,000)
    Initial recommendation Reject or Renegotiate
    If line 43 is Reject or Renegotiate, what price would be acceptable? $26.75
    Is additional management discussion warranted regarding subjective considerations? Yes

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