11.42 Special order calculations and decision George Jackson operates a small machine shop. He manufactures one standard product available from many other similar businesses, and he also manufactures custom-ordered products. His accountant prepared the following annual income statement. Custom sales $50 000 Standard sales $25 000 Total $75 000 Sales Costs Materials Labour Depreciation Power Rent Heat and light Other Total costs Income 10 000 20 000 6300 700 6000 600 400 44000 $ 6000 8000 9000 3600 400 1 000 100 900 23 000 $ 2000 18 000 29000 9900 1 100 7000 700 1 300 67 000 $ 8000 The depreciation charges are for machines used in the respective product lines. The power charge is apportioned on an estimate of power consumed. The rent is for the building space, which has been leased for 10 years at $7000 per year. The rent and the heat and lights are apportioned to the product lines based on the 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 Jackson if he would manufacture 5000 special units for her. Jackson is working at capacity and would have to give up some other business to take this order. He cannot renege on custom orders already agreed to, but he would have to reduce the output of his standard product by about one-half for a year while producing the specially requested customer part. The customer is willing to pay $7 for each part. The material cost will be about $2 per unit and the labour will be $3.60 per unit. Jackson will have to spend $2000 for a special device that will be discarded when the job is done. Required (a) Calculate and present the following costs related to the 5000-unit custom order. 1. The incremental cost of the order 2. The full cost of the order (incremental plus allocated fixed costs such as depreciation, rent, etc.) 3. The opportunity cost of taking the order 4. The sunk costs related to the order (b) Should Jackson take the order? Explain your answer. (LO2 and 6)