Managerial Accounting

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Relevant Costs: Walking Gems Inc.: Decision


Walking Gems Incorporated cuts and sets gemstones and designs custom jewelry. Walking Gems is considering expanding its business to include a goldsmithing shop that will expand the company's design capabilities.

Goldsmith, salary and benefits: \$67,500
Existing assistant, salary and benefits: \$35,000
Smithing supplies: \$5,000
Annual rent on existing space: \$120,000
Depreciation on current equipment: \$65,000
Advertising for new services: \$20,000
Advertising for existing services: \$25,000
Expected increase in revenues from goldsmith's designs: \$120,000

Based on the facts provided, should Walking Gems Incorporated undertake this expansion?

Walking Gems

undertake this expansion as their operating income will