Teague Plumbing has received a special one-time order for 1,500 toilets (units)

Question

Teague Plumbing has received a special one-time order for 1,500 toilets (units) at $75 per unit. Teague currently produces and sells 7,500 units at $100.00 each. This level represents 75% of its capacity. Production costs for these units are $75.00 per unit, which includes $70 variable cost and $5 fixed cost. To produce the special order, shipping costs of $10,000 will be incurred. Management expects no other changes in costs as a result of the additional production. If Teague wishes to earn $1,250 on the special order, the size of the order would need to be:

Explanation / Answer

fixed cost = 5 * 7500 = 3750$ So, variable cost = 70 per 1st 7500 units...and 70 + (10000/1500) = 76.67 for one time order. Fixed cost dosen't change ==> profit = (76.67-75)*N units = 1250 ==> N = 750 units

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