Imperial Jewelers is considering a special order for 25 handcrafted gold bracele

Question

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 $407.00 and its unit product cost is $263.00 as shown below: Direct materials $ 144 Direct labor 81 Manufacturing overhead 38 Unit product cost $ 263 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 $455 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.) Should the special order be accepted at this price? No Yes

Explanation / Answer

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?

Yes special order should be accepted

Incremental revenue (367*25) 9175 Less: Incremental cost Direct material (25*144) (3600) DIrect labour (25*81) (2025) Variable overhead (25*9) (225) Additional material (25*8) (200) Special tool (455) Total incremental cost (6505) Incrementa profit 2670

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