Ateneo de Zamboanga University
School of Management and Accountancy
Fr. Eusebio Salvador, SJ Campus
La Purisima St., Zamboanga City
SESSION GUIDE
Subject: COSMAN3 : Strategic Business Analysis
Content: Relevant Costing – Special Order Decisions
Date: March 10, 2025
Learning Intent:
1. Identify relevant costs in the decision to accept or reject the special order
2. Determine whether to accept or reject the special order, considering the following factors
a. Current production capacity of the company (If there is excess capacity or not)
b. Incremental costs / cost savings in accepting the special order
c. Lost contribution margin from normal sales (If the company has no excess capacity)
d. Other factors (If the product has defects)
Study session (pre-classroom activity)
1. Give the module about relevant costing
Session flow (in-class)
I. Priming Activity (Context) – 10 minutes
1. Review the concepts about Relevant Costing – Special Order Decisions
2. These are the cases that will be discussed
ABC Company is a manufacturer of industrial components. One of its products that is
used as a subcomponent in appliance manufacturing is AP110. This product has the following
information per unit:
Selling price P150
Costs:
Direct material P20
Direct labor 15
Variable manufacturing overhead 12
Fixed manufacturing overhead 30
Shipping and handling 3
Fixed selling and administrative 10
Total per-unit cost P90
Refer to the following independent cases
CASE 1
ABC has received a special, one-time order for 1,000 AP110 parts. Assuming ABC has excess
capacity,
a. What is the minimum price that is acceptable for beginning negotiations on this order?
b. If ABC Accepts the special order at P75 per unit, how much is the increase/decrease in
net income?
CASE 2
ABC has received a special, one-time order for 2,000 AP110 parts. Assume that ABC is operating
at full capacity, and that the contribution of the output would be displaced by the one-time
special order.
a. Using the original data, compute the minimum acceptable selling price for this order.
b. If ABC Accepts the special order at P160 per unit, how much is the increase/decrease in
net income?
CASE 3
ABC has received a special, one-time order for 1,000 AP110 parts. A foreign market wants to
purchase 1,000 AP110 parts. Duties would be P2 per unit and the costs for permits and licenses
will be P10,000.
a. Assuming ABC has excess capacity, what is the per unit break-even price on this order?
b. Assuming ABC accepted the special order at P80, how much is the increase / decrease in
ABC’s pre-tax income?
CASE 4
ABC has received a special, one-time order for 1,000 AP110 parts. The company will save P2 per
unit in shipping costs if the company will accept the special order.
a. Assuming ABC has excess capacity up to 500 units, what is the per unit break-even price
on this order?
b. Assuming ABC accepted the special order at P140, how much is the increase / decrease
in ABC’s pre-tax income?
II. Activity (Experience) – 15 minutes
1. Group the class into 4 groups
2. Give the sample problem about special order decision. Each group will answer the first
question of the case assigned to them
Group 1: Case #1
Group 2: Case #2
Group 3: Case #3
Group 4: Case #4
Each group shall present their answers.
III. Analysis – 10 minutes
1. What is the context of each case problem?
IV. Abstraction – 15 minutes
Discussion points:
1. Relevant costs are costs that will differ among alternatives
2. If the company has excess capacity, the goal of the company is to recover the incremental
costs in accepting the special order
3. If the company has no excess capacity, the goal of the company is not to recover the
incremental costs but also the lost contribution margin from normal sales
4. If the product has defects / obsolete, the goal of the company is to only recover the shipping
and selling costs of the product
V. Application – 30 minutes
1. The case problem will be assigned to another group. The assigned group will answer the second
question in the case These are the cases assigned to each group.
Group 1: Case #3
Group 2: Case #1
Group 3: Case #4
Group 4: Case #2
Each group shall present their answers.
VI. Reflection/Action (can happen anytime during the experience and application)
1. What are the clarifications I learned during the class?
2. What can I do to reinforce the concepts I learned during this class?
3. Can I explain this concept to someone who needs help in accounting and/or finance?