Imperial Jewelers is considering a special order for 27 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 27 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $407.00 and its unit product cost is $264.00 as shown below:


Direct materials $147.00
Direct labor 80.00
Manufacturing overhead 37.00
Unit product cost $264.00

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $14 of the overhead is variable with respect to the number of bracelets produced. The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This filigree would require additional materials costing $13 per bracelet and would also require acquisition of a special tool costing $451 that would have no other use once the special order is completed. This order would have no effect on the company's regular sales and the order could be fulfilled using the company's existing capacity without affecting any other order.

Q: What effect would accepting this order have on the company's net operating income if a special price of $367.00 per bracelet is offered for this order? (Input the amount as positive value. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

costs:

direct material

2016

(144*14)

diret labor

1162

(83*14)

Variable OH

112

(8*14)

filigree

98

(7*14)

tool

454

total costs

3842

revenue

5117

(14*365.50)

effect on income

1275

(revenue - total costs)

Answer: Income increases by $1275

costs:

direct material

2016

(144*14)

diret labor

1162

(83*14)

Variable OH

112

(8*14)

filigree

98

(7*14)

tool

454

total costs

3842

revenue

5117

(14*365.50)

effect on income

1275

(revenue - total costs)

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