minor electric has received a special one - time order for 1,500 light fixtures (units) at $5 per unit…

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? multiple choice no, because additional production would exceed capacity. no, because incremental costs exceed incremental revenue. yes, because incremental revenue exceeds incremental costs. yes, because incremental costs exceed incremental revenues. no, because the incremental revenue is too low.

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? multiple choice no, because additional production would exceed capacity. no, because incremental costs exceed incremental revenue. yes, because incremental revenue exceeds incremental costs. yes, because incremental costs exceed incremental revenues. no, because the incremental revenue is too low.

Answer

Explanation:

Step1: Calculate the total capacity

Current production is 7500 units which is 75% of capacity. Let total capacity be (x). Then (0.75x = 7500), so (x=\frac{7500}{0.75}=10000) units. Spare capacity (=10000 - 7500=2500) units. Since the special order is 1500 units ((1500<2500)), capacity is not an issue.

Step2: Calculate incremental revenue

Incremental revenue for 1500 units at ($5) per unit is (1500\times5=$7500)

Step3: Calculate incremental cost

Variable cost per unit is ($3). Variable cost for 1500 units is (1500\times3 = $4500). Cost of new machine is ($1000). Total incremental cost (=4500 + 1000=$5500)

Step4: Calculate incremental profit

Incremental profit (=) Incremental revenue - Incremental cost (=7500-5500=$2000)

Answer:

C. Yes, because incremental revenue exceeds incremental costs.