Minor Electric has received a special one-time order for 1,500 light fixtures (u

Question

Minor Electric has received a special one-time order for 1,500 light fixtures (units) at $11 per unit. Minor currently produces and sells 7,500 units at $12.00 each. This level represents 75% of its capacity. Production costs for these units are $13.50 per unit, which includes $9.00 variable cost and $4.50 fixed cost. To produce the special order, a new machine needs to be purchased at a cost of $625 with a zero salvage value. Management expects no other changes in costs as a result of the additional production. If Minor wishes to earn $1,075 on the special order, the size of the order would need to be:

Explanation / Answer

Calculate size of order :

Desired profit = 1075

New machine cost = 625

Variable cost per unit = $9 per unit

sale price per unit = $11 per unit

Order size = (desired profit+Machine cost)/Contribution margin per unit

                = (1075+625)/2

Order size = 850 Units

so answer is e) 850 units

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