Morgan Whitecrow operates a small machine shop. He manufactures one standard product that is available from many other similar businesses, and he also manufactures custom-ordered products. His accountant prepared the following annual income statement.

Custom Standard

Sales Sales Total

Sales$ 50,750$ 24,490$ 75,240

Costs

Material10,9007,60018,500

Labour19,6008,80028,400

Amortization6,6003,90010,500

Power6005001,100

Rent5,5009006,400

Heat and light55090640

Other4009001,300

Total costs44,15022,69066,840

Income$ 6,600$ 1,800$ 8,400

The amortization charges are for machines used in the respective product lines. The power charge is apportioned based on an estimate of power consumed. The rent is for the building space, which has been leased for 10 years at $6,400 per year. The rent and the heat and lighting 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 Morgan if he would manufacture 5,000 special units for her. Morgan 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 $6.89 for each part. The material cost will be about $2 per unit, and the labour will be $3.50 per unit. Morgan will have to spend $1,900 for a special device that will be discarded when the job is done.

Calculate and present the following costs related to the 5,000-unit custom order:

1.The incremental cost of the order$ ( )

2.The full cost of the order (incremental plus allocated fixed costs, such as amortization, rent, etc.)$ ( )

3.The opportunity cost of taking the order$ ( )

Should Morgan take the order?

The firm will be approximately $ (better/worse) off by ( )the order.