Based on the information available in the question, we can calculate the size of the special order as follows:-
|Contribution margin per unit||2|
Kindly note that Fixed costs of $1.5 per unit is irrelevant in accepting the special order as it continues to be incurred irrespective of whether accepting the Special order or not. Also, since accepting the special order would not result in any additional costs because the firm has excess capacity, there would not be any additional fixed expenses that Minor Electric has to incur in accepting the special order.
Hence, in order to calculate the required number of units to be sold to realize a profit of $625 on the special order, the minimum quantity that we need to sell is :-
=(Required Profit + Cost of machine)/Contribution margin per unit.
=($625 + $475)/2 per unit
=$1,100/2 per unit
Minimum Quantity = 550 units
Based on the above calculation, the correct answer is Option A - 550 units.
Option B is incorrect because 1,100 is the total amount that is required to recovered through the sale of goods from the special order and not the number of units.
Option C, Option D and Option E are incorrect per the calculations above.
Please let me know if you have any questions via comments and all the best :).