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Crown Designer is considering a special order for 20 special gold earrings to be given as gifts to members of an anniversary dinner party. The

Crown Designer is considering a special order for 20 special gold earrings to be given as gifts to members of an anniversary dinner party. The normal selling price of a gold earring is $190 and its unit product cost is $140.00 as shown below:

Direct materials $80.00 Direct labor 40.00 Manufacturing overhead 20.00 Unit product cost $140.00

The manufacturing overhead is mostly fixed and not affected by differences in how many earrings are produced in any given period. However, $8.00 of the overhead is variable with respect to the number of earrings produced. The customer who is interested in the special earring order would like special etching applied to the earrings. This etching would require additional materials costing $2.00 per erring and would also require the purchase of a special tool costing $280 that would have no other use once the special order is completed. This order would have no effect on the companys regular sales and the order could be fulfilled using the companys existing capacity without affecting any other order.

Required: What effect would accepting this order have on the companys net operating income if a special price of $170 per earring is offered for this order? Should the special order be accepted?

(Your answers should include calculations of each of the relevant cost involved in your decision)

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