Minor Electric has received a special one-time order for 1,500 light fixtures (units) at $5 per unit. Minor currently produces and sells 7,500 units at $6.00 each. This level represents 75% of its capacity. Production costs for these units are $4.50 per unit, which includes $3.00 variable cost and $1.50 fixed cost. To produce the special order, a new machine needs to be purchased at a cost of
$1,000 with a zero salvage value. Management expects no other changes in costs as a result of the additional production. Should the company accept the special order?

Question

Quizplus · Accepted Answer

The incremental revenue from the special order is $7,500 (1,500 units x $5 per unit), while the incremental cost is $6,000 (1,500 units x $4 per unit). Thus, the incremental revenue exceeds the incremental cost by $1,500 ($7,500 - $6,000). Therefore, the company should accept the special order.

Minor Electric Has Received a Special One-Time Order for 1,500