HarvestCo can produce an additional 5,000 units using idle capacity. Variable cost per unit is $6. The special order price is $7.50. No additional fixed costs are incurred.What is the total contribution margin from the special order?单项选择题
A
$2,500
B
$5,000
C
$7,500
D
$10,000

Question

HarvestCo can produce an additional 5,000 units using idle capacity. Variable cost per unit is $6. The special order price is $7.50. No additional fixed costs are incurred.What is the total contribution margin from the special order?单项选择题

A

$2,500

B

$5,000

C

$7,500

D

$10,000

BlackTom AI · Accepted Answer

Contribution margin per unit equals the special order price minus the variable cost per unit: CM/unit = Price − Variable cost.

1) Relevant concepts
- Variable costs change with production; fixed costs do not change with this special order (and no additional fixed costs are incurred).
- When capacity is idle and accepting a special order does not displace regular sales, only the incremental (variable) costs and revenues determine the incremental contribution margin.
- Total contribution margin = (CM per unit) × (number of units).

2) Step-by-step calculation
- Special order price = $7.50 per unit.
- Variable cost = $6.00 per unit.
- Contribution margin per unit = $7.50 − $6.00 = $1.50.
- Number of units = 5,000.
- Total contribution margin = $1.50 × 5,000 = $7,500.

3) Intermediate steps shown
- CM/unit = 7.50 − 6.00 = 1.50
- Total CM = 1.50 × 5,000 = 7,500

4) Why this is correct
Because the firm is using idle capacity and incurs no extra fixed costs, the incremental profit impact comes solely from the per-unit contribution (price minus variable cost). A positive contribution of $1.50 per unit increases overall profit by $7,500 for the 5,000-unit order.

5) Why the other options are incorrect
- $2,500 would imply a CM of $0.50 per unit (2,500/5,000), which does not match price − variable cost.
- $5,000 would imply a CM of $1.00 per unit, also inconsistent with the given numbers.
- $10,000 would imply a CM of $2.00 per unit, again inconsistent.
None of these reflect the correct CM/unit of $1.50.

Conclusion: The total contribution margin from the special order is $7,500, matching the provided correct answer.

HarvestCo can produce an additional 5,000 units using idle capacity. Variable cost per unit is $6. The special order price is $7.50. No additional fixed costs are incurred.What is the total contribution margin from the special order?单项选择题

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