Accept or reject special order decisions as a hotel manager, as a hotelier must know and must learn. As a manager, you must consider different topics and daily tasks to operate the hotel properly. Find the solutions to the problem also. But at the end of the day, everybody is looking for a profitable business. As a manager, you will fail the specific task if you can show a good amount of profit. To increase or have a good profit, you must know which task or special orders you need to accept or reject. As a hotelier, you must know how to get special orders to profit the business well. In this article, we will explain how to take special order decisions.
How to make accept or reject special order decisions?
For example, You may work as a restaurant manager, Food and beverage manager, Executive chef, Front office manager, Event manager, or any other. Then you should know what special orders which time to time hotel get is. Special orders mean the hotel can get special prices requested more than the day-to-day orders or work process. Another word can say Additional order or activities.
For instance, if you work as a restaurant manager, food and beverage manager, executive chef, front office manager, event manager, or any other similar position, you should be aware of the special orders that hotels receive from time to time. Special orders imply that the hotel can obtain more favourable prices than standard orders or work procedures. An alternate word for Additional order or activities.
Accept or reject special order Accounting Example.
Imagine, You are working at a five-star hotel as a Food and Beverage manager. Your hotel is selling a 1 Kg Special chocolate cake for $69. However, a special order request comes from a customer looking for 100 chocolate cakes for $50. As a manager, will you Accept or reject special order?
Simply you can say, You will not accept that order because it is a lower price request than the regular selling price, and if you accept the above proposal, you will lose the profit of $19 from each cake. However, a basic argument can be correct. But as a manager, you need to look deeper into that special order. To do that, request a cost report for the above special order from the accounting department. Imagine the Account department gives the cost report above special order as below.
| Direct Material Cost | $3720 |
| Direct Labor Cost | $900 |
| Variable Manufacturing Overhead | $120 |
| Fixed Manufacturing Overhead | $700 |
| Customer Acquisition Cost | $200 |
| Total cost | $5640 |
| Cost for one cake | $5640 / 100 (Divided) |
| $56.40 |
According to the accountant’s report, it can cost more than the profit. First, however, as a manager, you must find the relevant and fixed costs of the above. Then, based on that, you can decide to accept or reject special order.
Fixed Manufacturing Overhead – $700 is a fixed cost in this case. Whether you did this special order or not, that cost is there. Another thing is Customer Acquisition Cost – $200, which means how you attract the customer to sell the cakes. That can be advertising cost. This order came directly to the hotel. Because of that, there should be no advertising cost to be applied. Then you can avoid these two cost. Now calculate again excepting these two costs.
| Direct Material Cost | $3720 |
| Direct Labor Cost | $900 |
| Variable Manufacturing Overhead | $120 |
| Total cost | $4740 |
| Per cake price | $4740 / 100 |
| $47.40 | |
Now you can see this special order is giving a profit of $9 per cake. So now, what is your answer? Accept or not.
The answer should be to accept this order because it gives profits. Same that you can have a lot of special orders every day coming to you. Especially festival season. You should be careful and analyse correctly and go through each detail. Then, you can make a decision whether to accept or reject special orders.
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