XYZ Company just got a call for a large special order for their computer circuit boards.This company has requested a 20% discount since they will be ordering a large number at one time. The one issue is that they would like the circuit boards to be purple, rather than their typical green. This would require a special piece of equipment at a cost of $10,000 that may only be used once for this order. How should XYZ proceed?

(A) They should take the order, as it is large and will product a larger amount of income.
(B) They should not take the order as the special equipment may only be used once, so it is not a good investment.
(C) They should evaluate their variable costs, space in their manufacturing facility and this additional fixed equipment cost and see if they will make a profit with the 20% discount.

The XYZ company should proceed with caution and "they should evaluate their variable costs, space in their manufacturing facility and this additional fixed equipment cost and see if they will make a profit with the 20% discount."

Explanation:

Because the special equipment might not be usable for a long period of time and might not bring maximum profit to XYZ company as a result they have to really evaluate the variable cost so as to maximize the profit.

Correct answer is C: They should evaluate their variable costs, space in their manufacturing facility and this additional fixed equipment cost and see if they will make a profit with the 20% discount.

Explanation:

Business is all about money and making profit. Before you make an investment, you must check to see if the business would yield profit, then it is a good investment. For company XYZ, once they evaluate the cost of adding another unit (purple), space in their manufacturing facility and this additional fixed equipment cost, and then they cost it at the 20% discount, if there is a profit, then it is an investment to venture in. It is also an opportunity for XYZ to start a new line of circuit boards that people may begin to purchase.

73,000 units

Explanation:

Equivalent units

Focus on the work done during the production period when using FIFO.

Direct materials = 68,000 + 5,000 = 73,000 units

therefore,

the total equivalent units for direct materials (using the FIFO method is 73,000 units