The Jacobs Corporation produced and sold 20,000 cowbells last year. Jacobs’s profit report follows:

 

This year Jacobs again expects to sell 20,000 cowbells through normal channels. It has also received an order for 5,000 cowbells at $1.75 each. The selling cost per unit will not be incurred on this order because no commission will be paid; however, an additional production run will be required at a cost of $1,000. Product-sustaining costs will not be incurred. The company has the capacity to produce the order.

Required: 

A. What is the relevant cost of the special order?

B. Should Jacobs accept or reject the special order?

C. How could this decision be affected by Jacobs’s other customers?

D. How could this decision be affected by legal factors?

Sales Less: Direct materials Direct labor Unit-related overhead Selling costs per unit Contribution margin Less: Batch-related costs Product-sustaining costs Facility-sustaining costs Profit $50,000 10,000 5,000 6,000 10,000 $19,000 4,000 1,000 12,000 $ 2,000