Minor Electric has received a special one-time order for 1,500 light fixtures (units) at $5 per unit. Minor currently produces a

Question

2 months ago

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Minor Electric has received a special one-time order for 1,500 light fixtures (units) at $5 per unit. Minor currently produces a

nd 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?

Business

2 answers:

harina [3.8K] · Answer 1 · 2026-03-23T18:41:32+03:00

The company ought to accept the special order; this is the right decision.

EXPLANATION

To ascertain whether to accept the proposal, we must assess the profit generated from it. The standard formula to use is profit = revenue – cost

If the new order is taken, the revenue will rise by $5 x 2500 = $12,000.

Conversely, the expenses for the existing production and this new order will remain at $4.5, made up of $1.5 in fixed costs and $3 in variable costs. Hence, fixed costs will escalate by $1,000 to acquire the machine and variable costs will increase by $3 x 2500 = $7,000.

Consequently, the total profit will increase by $4,000, calculated as $12,000 - $1,000 - $7,000.

This assumes that the company utilizes the entire 25% of its capacity (2500 units) even though the special order is for only 1500 units. Thus, the company should proceed with the acceptance of the special order.

LEARN MORE

If you're looking to delve deeper into this subject, we suggest reviewing the following questions:

Profit equals the total earning minus?

Business leaders initiate vertical integration:

KEYWORDS: special order, fixed cost, production

Subject: Business

Class: 10-12

Subchapter: Cost

Free_Kalibri [3.7K] · Answer 2 · 2026-03-23T18:39:26+03:00

The firm ought to approve the special order, as it would result in an extra profit of $4,000 ($12,500 - $7,500 - $1,000) attributed to this special order. This additional profit can be analyzed by isolating the impact of the special order on each cost and revenue of the business. If the order is accepted, sales will increase by $12,500 ($5 x 2500 units), while variable costs will rise by $7,500 ($3 x 2500 units). Finally, fixed costs will go up by $1,000 due to the purchase of the new machine.