Imperial Jewelers is considering a special order for 30 handcrafted gold bracele
ID: 2425652 • Letter: I
Question
Imperial Jewelers is considering a special order for 30 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $409.00 and its unit product cost is $269.00 as shown below:
Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $12 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 $11 per bracelet and would also require acquisition of a special tool costing $461 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.
What effect would accepting this order have on the company’s net operating income if a special price of $369.00 per bracelet is offered for this order? (Enter all amounts as positive values.)
Imperial Jewelers is considering a special order for 30 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $409.00 and its unit product cost is $269.00 as shown below:
Explanation / Answer
As the order will generate operating profit of $2659. So the order should be accepted
Per Unit in $ Total 30 bracelets in $ Incremental revenue 369 11070 Incremental Cost: Variable cost: Direct Material cost 146 4380 Direct Labour 86 2580 Variable Manufacturing Overhead 12 360 Special Filligree 11 330 Total Variable Cost 255 7650 Fixed Cost: Purchase Of Special Tool 461 Total Incremental Cost 8111 Incremental net operating income (loss) 2659Related Questions
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