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?
A)No,because net income would decrease by $1,500.
B)No,because net income would decrease by $2,000.
C)Yes,because net income would increase by $7,500.
D)Yes,because net income would increase by $2,000.
E)No,because net income would decrease by $5,500.

Question

Quizplus · Accepted Answer

The additional revenue from the special order is 1,500 units * $5/unit = $7,500. The additional variable costs are 1,500 units * $3/unit = $4,500. The fixed costs do not change except for the new machine purchase of $1,000. Therefore, the net increase in income is $7,500 (revenue) - $4,500 (variable costs) - $1,000 (machine) = $2,000.

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