Accept Reject Order Decisions
You are evaluating orders from two new customers, but you will only be able to accept one of the orders without increasing your fixed costs. Management has directed you to choose the one that is most profitable for the company.
Customer A is ordering 500 units and is willing to pay $200 per unit, and these units have a contribution margin of $60 per unit.
Customer B is ordering 1,000 units and is willing to pay $140 per unit, and these units have a contribution margin ratio of 40%.
Note: Calculated contribution per unit = $140 x .4 = $56.
Which order do you select and why?
| Customer | Number Units Ordered | Sales Price Per Unit | Contribution Margin Per Unit | Total Contribution Dollars |
| A | 500 | 200 | 60 | 30,000 |
| B | 1000 | 140 | 56 | 56,000 |
Based on our contribution margin analysis Customer B's order should be selected because it provides an additional $26,000.