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.If Minor wishes to earn $1,250 on the special order,the size of the order would need to be:
A)4,500 units.
B)2,250 units.
C)1,125 units.
D)625 units.
E)300 units.

Question

Quizplus · Accepted Answer

The correct answer is C.The contribution margin per unit is $6.00 - $4.50 = $1.50. To earn $1,250, Minor needs to sell 1,250 / $1.50 = 833.33 units. Since Minor is already producing 7,500 units, it needs to produce an additional 833.33 units to meet the special order. Therefore, the size of the order would need to be 7,500 + 833.33 = 1,125 units.

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