Exercise 12-4 Evaluating a Special Order [L012-4] Imperial Jewelers is consideri

Question

Exercise 12-4 Evaluating a Special Order [L012-4] Imperial Jewelers is considering a special order for 25 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is S407.00 and its unit product cost is $260.00 as shown below 141 Direct materials Direct labor Manufacturing overhead31 260 Unit product cost Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, S5 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 $4 per bracelet and would also require aoquisition 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: 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.) Incremental rewenue Incremental costs: Variable costs Direct materials Direct labor Total variable cost Fixed costs Purchase of s Total incremental cost inoome (oss Should the special order be accepted at this price? Yes No

Explanation / Answer

Prepare incremental offer :

Yes, special order should be accept

Per unit Total 25 Bracelets Incremental revenue 367 9175 Incremental costs Direct material 141 3525 Direct labour 88 2200 Variable manufacturing overhead 5 125 Special filligree 4 100 Total variable cost 238 5950 Fixed cost Purchase of special tool 451 Total incremental cost 6401 Incremental net operating income (loss) 2774

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