Question

Minor Electric has received a special one-time order for 800 light fixtures (units) at $10 per unit. Minor currently produces and sells 9,000 units at $13.00 each. This level represents 90% of its capacity. Production costs for these units are $8.00 per unit, which includes $6.50 variable cost and $1.50 fixed cost. To produce the special order, a new machine needs to be purchased at a cost of $800 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

Answer 1

Answer and Explanation:

The computation is shown below;

But before that the net income from special order is

Sales value (800 × $10) $8,000

Less: variable cost (800 × $6.5) -$5,200

Less: fixed cost $800

Net income $2,000

As the net income comes in positive that means the company should accept the special order as the net income would increased by $2,000