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Gem Company manufactures several different styles of jewelry cases. Management estimates that during the upcoming third quarter of $2022$ the company will be operating at $80\%$ of normal capacity. Gem$$s manufacturing capabilities are limited with plant capacity under normal operations is $90,000$ machine hours per year or $7,500$ machine hours per month. The budgeted manufacturing overhead for $2022$ is forecast to be $$360,000$ of which $$216,000$ is fixed.

The cost data for the regular Gem jewelry case is as follows: Regular selling price:

Costs: Direct materials:

Direct labor: $$18\mathrm{.}00/$ DLH producing $6$ units per DLH Variable Manufacturing Overhead $(0\mathrm{.}25$ machine hours$/$unit$)$

$$10\mathrm{.}00/$ unit $$2\mathrm{.}50/$unit

$\_\_\_\_\_/$unit $\_\_\_\_\_/$unit

Because Gem$$s management wishes to have higher utilization of plant capacity, the company will consider a special order. Gem has received special$-$order inquiries from two companies.

The first special order is from PBJ$,$ Inc., which would like to market a jewelry case similar to Gem'sregularjewelrycase.ThePBJjewelrycasewouldbemarketed under PBJ$\text{'}$s own label. PBJ$,$ Inc., has offered Gem $$7\mathrm{.}00$ per jewelry case for $25,000$ cases to be shipped by October $1,2022.$ According to the specifications provided by PBJ$,$ Inc., the special$-$order case requires less expensive direct materials which will cost $$0\mathrm{.}15$ less per case. Management has estimated that the remaining costs, labor time, and machine time will be the same as for the Gem jewelry case.

The second special order was submitted by the Rose Company for $10,000$ jewelry cases at $$8\mathrm{.}75$ per case. Like the PBJ cases, these jewelry cases would be marketed under the Rose label and have to be shipped by October $1,2022.$ However, the Rose jewelry case is different from any jewelry case in the Gem line.

The estimated per$-$unit costs of the Rose jewelry case are as follows: Direct materials

Direct labor: $$18\mathrm{.}00/$ DLH producing $5$ units per DLH Variable Manufacturing Overhead $(0\mathrm{.}25$ machine hours$/$unit$)$

$$3\mathrm{.}25\_\_\_\_\_/$unit $\_\_\_\_\_/$unit

In addition, Gem 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.

Gem will have the entire third quarter to work on the special orders. Management does not expect any repeat sales to be generated from the PBJ Inc. order but believes that Rose Company may place future orders.

Required:

You have been asked to analyze these special order orders. Provide both quantitative and qualitative reasons for your recommendations.

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