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. If Minor wishes to earn $1,250 on the special order, the size of the order would need to be:
A) 4,500 units.
B) 2,250 units.
C) 1,125 units.
D) 625 units.
E) 300 units.
C) 1,125 units.
Explanation: Total additional fixed costs + desired profit = Units to sell
Contribution margin per unit
$1,000 + $1,250 = 1,125 units
($5 — $3)
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