Imperial Jewelers is considering a special order for 12 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 12 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 $261.00 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, $6 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 $5 per bracelet and would also require acquisition of a special tool costing $454 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: 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? (Enter all amounts as positive values.)

Explanation / Answer

Imperial Jewellers All Amounts in $ Effect of Accepting Order on Company's Net Operating Income Per Total 12 Unit Bracelets Incremental Revenue 367 4404 Incremental Costs Variable Costs : Direct Materials 141 1692 Direct Labor 85 1020 Variable Manufacturing Overheads 6 72 Special Filigree Total Variable Costs 232 2784 Fixed Costs Purchase of Special Tool 454 Total Incremental Costs 3238 Incremental Net Operating Income/(Loss) 1166

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