Intermediate level · Module 2: Cost Behaviour and Break-Even Decisions · Lesson 3 of 3
Costing and Pricing Decisions
Use full and marginal costs to price products and evaluate special orders.
In this lesson you will
- Calculate full cost per unit
- Evaluate a special order using contribution
Key concepts
full costmarginal costspecial ordersspare capacity
The lesson
Full cost per unit adds a share of fixed costs to variable cost; long-run prices must cover it.
For a one-off order using spare capacity, fixed costs do not change, so any price above variable cost adds profit — as long as it does not undercut regular customers.
Consider capacity, cash timing and customer relationships, not only numbers.
Step by step
- Calculate full cost per uniform.
- Evaluate a school's bulk order at a lower price.
- Check capacity and cash timing.
- Recommend.
Practice activity
Advise the workshop on the bulk order.
Expected result: A recommendation using contribution and practical factors.
Check your understanding
-
When does a special order at a low price add profit?
Show answer
When the price exceeds variable cost and spare capacity exists.
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Why must long-run prices cover full cost?
Show answer
Otherwise fixed costs are never recovered.
Taught live by an instructor — online or in person. Free course lessons are for self-study and do not lead to a certificate — see registration options.