4ch 23, 24&O; Help Save & Exit Submit Minor Electric has received a special one-

Question

4ch 23, 24&O; Help Save & Exit Submit 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 r 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 purchased at a cost of $1,000 with a zero salvage value. Management expects no other changes special order? 16 in costs as a result of the additional production. Should the company accept the 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 reve No, because the incremental revenue is too low K Prey 16 of 40 ext> Type here to search 1048 PM 6/30/2018

Explanation / Answer

16.

Incremental Revenue exeeds incremental cost, Explained in below table.

Cost

per unit

Less:Cost.

Note: Since Production Incresed fixed cost redused to 1.25 per unit.

17.

Payback Period 4.74 Years Expained as under.

Payback period= Investment / Annual cash flows(net income.

=$25200 / $5320

=4.74 Years.

18.Accounting Rate of return 4.80 %

=Return / Investment(Cost Of machine)*100.

=$3,600 / $75,000*100

=4.80%

19.Calculation Of net present value.

Accept the project Sr.No. Purticulers Unit

Cost

per unit

Total A Total Incremental Revenue 1500 $5 $7500 B.

Less:Cost.

Variable Cost 1500 $3 ($4500) Fixed Cost (Refer Note Below) 1500 $1.25 ($1875) Total(B) ($6375) C New Machine Required ($1000) D Total Incremental Cost (B+C) ($7375) E Net Incremental Revenue (A-D) $125.

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