Imperial Jewelers is considering a special order for 15 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 15 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 $267.00 as shown below: Direct materials Direct labor Manufacturing overhead $ 141 86 40 Unit product cost $ 267 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $9 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 $8 per bracelet and would also require acquisition of a special tool costing $464 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.

Explanation / Answer

Per unit Total 15 bracelets Incremental revenue 367 5505 Incremental costs: Variable costs: Direct materials 141 2115 Direct labor 86 1290 Variable manufacturing overhead 9 135 Special filgree 8 120 Total variable cost 244 3660 Fixed costs: Purchase of special tool 464 Total Incremental costs 4124 Incremental net operating income(loss) 1381 2 Yes

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