The order that looks dependable
You run a small packaging shop. A customer wants 100 packs every week at a fixed price, with Friday delivery. Your manager favors renewal: repeat orders feel predictable, and fewer sales calls should mean better margins. But predictability does not create finishing capacity. A contract can look attractive on the quote and cost more than it earns.
Put one order through the schedule
Consider one hypothetical order; all figures are illustrative, not reported results. Order P-24 brings in $240. Its quote allows $180 for materials, production labor and delivery. The $60 remainder is contribution: revenue minus costs caused by the order, available to cover fixed overhead. The record says “Finishing hours: 4.”
Before renewal, confirmed delivery commitments already fill the finishing station’s regular hours. After you accept P-24, the manager keeps those promises by scheduling four overtime hours. The extra overtime cost, beyond labor already allowed in the quote, is $80. The time record and revised costing now show $260 against $240 revenue: a $20 loss before overhead. Repeating that schedule repeats the loss.
Inspect the hours behind the margin
The mechanism is a missing capacity cost. Standard labor assumptions survive in the quote even though the delivery date forces overtime. Treat the finishing station like an airport runway: another booking creates no extra slot.
Compare P-24’s “Finishing hours” with the dated production schedule. Recalculate using the extra labor cost in the time record. The price fails this check when unavoidable overtime uses up the $60 contribution. Offer a later delivery, reprice, or decline renewal. A later date helps only if it moves the job into regular hours the schedule can spare.
The boundary: four idle hours
Now suppose, hypothetically, four regular hours are idle and no confirmed job moves. If $180 covers every added cost, P-24 contributes $60 toward overhead. Accept only while capacity remains spare and payment timing leaves enough cash to operate. That contribution is not net profit; an invoice is not cash collected.