Minor Electric has received a special one-time order for 1,500 light fixtures (units) at $5.00 per unit. Minor currently produces and sells 7,500 units at $6.00 each.

Minor Electric has received a special one-time order for 1,500 light fixtures (units) at $5.00 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. Accepting the offer would require incremental fixed general and administrative costs of $1,000. Management expects no other changes in costs as a result of the additional production. Should the company accept the special order?

Multiple Choice

Yes, because incremental revenue exceeds incremental costs. Correct

No, because the incremental revenue is too low.


No, because additional production would exceed capacity.


Yes, because incremental costs exceed incremental revenues.


No, because incremental costs exceed incremental revenue.

Explanation
Special Offer Analysis    Per Unit    Total
Sales (1,500 units)    $ 5.00    $ 7,500
Variable costs    3.00    4,500
Contribution margin    2.00    3,000
Fixed costs         
Fixed general and administrative    0.67*    1,000
Income    $ 1.33    $ 2,000

*$1,000/1,500 units