Special Order: George Jackson operates a small machine shop. He manufactures one standard product, which is available from many other similar businesses, and he also manufactures products to customer order. His accountant prepared the annual income statement shown below:

The depreciation charges are for machines (based on time) used in the respective product lines. The power charge is apportioned on the estimate of power consumed. The rent is for the building space, which has been leased for 10 years at $7,000 per year. The rent and heat and light are apportioned to the product lines based on amount of floor space occupied. All other costs are current expenses identified with the product line causing them.

A valued custom parts customer has asked Mr. Jackson if he would manufacture 5,000 special units for him. Mr. Jackson is working at capacity and would have to give up some other business in order to take this business. He can't renege on custom orders already agreed to, but he could reduce the output of his standard product by about one half for one year while producing the specially requested custom part. The customer is willing to pay $7 for each part. The material cost will be about $2 per unit, and the labor will be $3.60 per unit. Mr. Jackson will have to spend $2,000 for a special device, which will be discarded when the job is done.

Required: Should Mr. Jackson take the order? Explain your answer.

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Custom Sales Standard Sales Total Sales revenue $50,000 $25,000 $75,000 Materials 10,000 8,000 18,000 Labor 20,000 9,000 29,000 Depreciation 6,300 3,600 9,900 Power 700 400 1,100 Rent 6,000 1,000 7,000 Heat and light 600 100 700 Other Total costs 400 44,000 900 1,300 23,000 67,000 Operating profit $ 6,000 $ 2,000 $ 8,000