Asked by
sumit kumar
on Oct 14, 2024
Verified
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.
Special Order
A one-time customer order often involving unique specifications, which might not fit into the company's standard offerings.
Variable Cost
Costs that vary directly with the level of production or volume of output, such as raw materials and direct labor.
Fixed Cost
Fixed cost refers to a cost that does not change with the level of output or sales in the short term, such as rent, salaries, or loan payments.
- Develop an understanding of the principles of incremental cost and revenue, including their applications in managerial strategies.
- Evaluate the financial advisability of embracing special orders or evaluations concerning additional processing.
Verified Answer
DC
Learning Objectives
- Develop an understanding of the principles of incremental cost and revenue, including their applications in managerial strategies.
- Evaluate the financial advisability of embracing special orders or evaluations concerning additional processing.