3. Imperial Jewelers is considering a special order for 20 handcrafted gold brac

Question

3. Imperial Jewelers is considering a special order for 20 handcrafted gold bracelets to be given as g members of a wedding party. The normal selling price of a gold bracelet is $189.95 and its un cost is $149 as shown below: it product Direct materials Direct labor Manufacturing overhead Unit product cost $ 84 s 45 S S 149 20 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $4 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 $2 per bracelet and would also require acquisition of a special tool costing $250 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: Vhat effect would accepting this order have on the company's net operating income if a special price of S169.95 per bracelet is offered for this order? Should the special order be accepted at this price? Answer:

Explanation / Answer

Imperial Jewelers Per Unit Total Special Order for 20 Bracelets Incremental Revenue=(20*$169.95) $ 169.95 $ 3,399.00 Incremental Cost= Variable Cost: Direct Material=(20*$84) $     84.00 $ 1,680.00 Direct Labor=(20*$45) $     45.00 $     900.00 Variable Manufacturing Overhead=(20*$4) $       4.00 $        80.00 Additional Material for Special filgree=(20*$2) $       2.00 $        40.00 Total Variable cost=(20*$135) $ 135.00 $ 2,700.00 Fixed Cost: Special tool Cost $     250.00 Total Incremental cost=($2700+$250) $ 2,950.00 Incremental Net Operating Income=($3399-$2950) $     449.00 Overhead Given $     20.00 Less: Variable $       4.00 Fixed Overhead $     16.00 Company's normal selling price given=$189.95 and special order price given $169.95 Even though special order price is lower than the normal selling price it would increase company's net operating income,so company should accept special order.

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