A low selling price does not automatically make a one-off order a bad decision. Equally, a positive contribution does not automatically justify accepting it. For ACCA learners in Sri Lanka, an apparel-order scenario offers a useful way to practise the difference between reporting a product’s average cost and deciding what changes if a new order is accepted.
The business and numbers below are fictional. They are a learning exercise, not a survey of Sri Lankan factories, a commercial quotation or advice about local taxes. The objective is to construct an answer that a production manager could question and understand.
The order on the manager’s desk
A workshop receives an offer for 800 shirts at LKR 1,900 each. Production would require LKR 820 of new fabric and LKR 360 of additional paid labour per shirt. Special packaging costs LKR 80 per shirt, and preparing the customer’s pattern costs LKR 120,000 once. The workshop has enough unused production capacity for the order.
Additional revenue is LKR 1,520,000. Fabric, extra labour and packaging total LKR 1,008,000. Adding the pattern preparation produces a relevant outflow of LKR 1,128,000. The initial financial advantage is therefore LKR 392,000.
A separate costing sheet allocates LKR 250,000 of existing monthly rent to the order. In this scenario the rent remains payable whether the order is accepted or refused. It does not reduce that LKR 392,000 decision advantage. This does not mean rent is unimportant to the business; it means this particular decision does not change it.
Ask what the apparently spare capacity can do
Now change one fact. Accepting the order would displace another job generating LKR 460,000 of contribution. Giving up that contribution changes the decision: the LKR 392,000 benefit is outweighed by an opportunity cost of LKR 460,000, leaving a LKR 68,000 disadvantage.
Do not combine the two scenarios. One has genuinely spare capacity; the other sacrifices an alternative. A good written answer states which version it is evaluating before recommending acceptance or rejection.
Investigate the labour assumption
The exercise treats the labour payment as additional. If employees would receive exactly the same pay while otherwise idle, the relevant labour figure needs reconsidering. If overtime premiums, temporary recruitment or supervision arise, those belong in the analysis. A job title or an hourly rate alone does not establish which cash flows change.
Make a two-column worksheet headed “changes if accepted” and “unchanged”. Place each fact once, then write a short reason beside it. This exposes missing assumptions more effectively than highlighting every number in a question.
Write the commercial conditions beside the calculation
Before accepting, the manager would also want evidence about achievable quality, delivery dates, credit risk and whether regular customers could demand the same lower price. A profitable calculation cannot repair an impossible production promise. Separate quantified factors from concerns that still require investigation.
An effective conclusion might say: “The order adds LKR 392,000 with the stated spare capacity and incremental labour assumptions. Accept only after confirming delivery feasibility and collection terms; reassess if other work must be displaced.” That is more useful than an unsupported instruction to accept because the price exceeds variable cost.
Extend the case yourself
Recalculate the maximum contribution that could be sacrificed before the order becomes unattractive. Then reduce the selling price by LKR 150 per shirt and explain the change in the recommendation. Keep the arithmetic and management explanation together. The transferable skill is selecting the right information, not memorising the workshop’s answer.
Sources and further study
Explore ASA ACCA courses for your next paper, and check the course page for its current teaching language, syllabus coverage and access terms.