Exercise 12-4 Evaluating a Special Order [LO12-4] Imperial Jewelers is consideri
ID: 2493523 • Letter: E
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Exercise 12-4 Evaluating a Special Order [LO12-4] 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 $400.00 and its unit product cost is $264.00 as shown below: Direct materials Direct labor Manufacturing overhead $148 81 35 Unit product cost $264 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $10 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 $9 per bracelet and would also require acquisition of a special tool costing $453 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 $360.00 per bracelet is offered for this order? (Enter all amounts as positive values.)Explanation / Answer
Per unit
Total 12 Bracelets
Incremental revenue
$ 360
$ 4,320
Incremental costs:
Variable costs:
Direct materials
$ 148
$ 1,776
Direct labor
$ 81
$ 972
Variable manufacturing overhead
$ 10
$ 120
Special filigree
$ 9
$ 108
Total variable cost
$ 248
$ 2,976
Fixed costs:
Purchase of special tool
$ 453
Total incremental cost
$ 3,429
Incremental net operating income/(loss)
$ 891
The special order should be accepted because the it would provide $891 incremental income.
Per unit
Total 12 Bracelets
Incremental revenue
$ 360
$ 4,320
Incremental costs:
Variable costs:
Direct materials
$ 148
$ 1,776
Direct labor
$ 81
$ 972
Variable manufacturing overhead
$ 10
$ 120
Special filigree
$ 9
$ 108
Total variable cost
$ 248
$ 2,976
Fixed costs:
Purchase of special tool
$ 453
Total incremental cost
$ 3,429
Incremental net operating income/(loss)
$ 891
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