iyamoto Jewelers is considering a special order for 18 handcrafted gold bracelet
ID: 2460172 • Letter: I
Question
iyamoto Jewelers is considering a special order for 18 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $405 and its unit product cost is $259 as shown below: Direct materials $ 142 Direct labor 85 Manufacturing overhead 32 Unit product cost $ 259 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $13 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 $12 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. Required: a. What effect would accepting this order have on the company's net operating income if a special price of $365 is offered per bracelet for this order? (Input the amount as a positive value.) Net operating income by $
Explanation / Answer
cost per unit for special order= Direct materials-142+Direct labour-85+Mfg overhead-13+Addn mat-12=$252
Total cost=18*252+451 for special tool= $4987
Total revenue= 18*365=6570
Hence the net operating income would increase by $ 1583 (6570-4987)
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