8 Anchor Company manufactures several different styles of jewelry cases. Management estimates that during the third quarter of 20x6 the company will be operating at 80% of normal capacity. Because Anchor desires a higher utilization of plant capacity, the company will consider a special order. Anchor has received special-order inquiries from two companies. The first order is from JCP, Inc., which would like to market a jewelry case similar to one of Anchor's cases. The JCP jewelry case would be marketed under JCP's own label. JCP, Inc., has offered Anchor $5.75 per jewelry case for 20,000 cases to be shipped by October 1, 20x6. The cost data for the Anchor jewelry case, which would be similar to the specifications of the JCP special order, are as follows: Regular selling price per unit $9.00 Costs per unit: Raw materials $2.50 Direct labour 0.5 hours @ $6.00 3.00 Overhead 0.25 machine hours @ $4.00 1.00 Total costs $6.50 According to the specifications provided by JCP,Inc., the special-order case requires less expensive raw materials. Consequently, the raw materials will cost only $2.25 per case. Management has estimated that the remaining costs, labor time, and machine time will be the same as for the Anchor jewelry case. 5 The second special order was submitted by the Krage Company for 7,500 jewelry cases at $7.50 per case. Like the JCP cases, these jewelry cases would be marketed under the Krage label and have to be shipped by October 1, 20x6. However, the Krage jewelry case is different from any jewelry case in the Anchor line. The estimated per-unit costs of this case are as follows: Raw materials $3.25 Direct labour 0.5 hours @ $6.00 3.00 Overhead 0.5 machine hours @ $4.00 2.00 Total costs $8.25 In addition, Anchor will incur $1,500 in additional setup costs and will have to purchase a $2,500 special device to manufacture these cases; this device will be discarded once the special order is completed. The Anchor manufacturing capabilities are limited to the total machine hours available. The plant capacity under normal operations is 90,000 machine hours per year or 7,500 machine hours per month. The budgeted fixed overhead for 20x6 amounts to $216,000. All manufacturing overhead costs are applied to production on the basis of machine hours at $4.00 per hour. Anchor will have the entire third quarter to work on the special orders. Management does not expect any repeat sales to be generated from either special order. Company practice precludes Anchor from subcontracting any portion of an order when special orders are not expected to generate repeat sales. Required: Should Anchor Company accept either special order? Justify your answer and show your calculations