Reference no: EM132581165

Question 1: ADL company produces a single component with variable and fixed production costs of $7 and $3. The product currently sells for $12 per unit. The company is currently operating at 50% of its 10,000 unit annual production capacity. A customer recently approached the company with a one-time special order for 7,000 units, offering the company only $10 per unit. Because of the specific nature of this order, the company would have to invest in a special machine (which would cost an additional $10,000) to satisfy this order. Variable production costs would remain unchanged. If the special order was accepted, the machine would be sold immediately after the order was delivered for $2,000. Should the company accept the special order?

Option a) yes, as the company would earn an additional $3000

Option b) yes, as the company would earn an additional $4000

Option c) No as the company would lose $15000

Option d) no as the company would lose $7000