Imperial Jewelers is considering a special order for 16 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 16 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $402.00 and its unit product cost is $270.00 as shown below: Direct materials Direct labor Manufacturing overhead $148 34. $270 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, $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 $461 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 withou t affecting any other order Required What effect would accepting this order have on the company's net operating income if a special price of $362.00 per bracelet is offered for this order? (Enter all amounts as positive values.) Per Total 16 Unit Bracelets Incremental revenue Incremental costs: Variable costs: Direct materials Direct labor Variable manufacturing overhead Special filigree Total variable cost Fixed costs: Purchase of special tool Total incremental cost Incremental net operating income (loss) Should the special order be accepted at this price? O No Yes

Explanation / Answer

Company should accept the special order. because it wiil result to increase in net income by $1,283

Per unit Total 16 Bracelets Incremental Revenue $         362 $362*16 = $5,792 Incremental Costs Variable Costs Direct Material $         148 $148*16 = $2,368 Direct Labour $           88 $88*16 = $1,408 Variable Manufacturing OH $             9 $9*16 = $144 Special Filigree $             8 $8*16 = $128 Total Variable cost $         253 $                         4,048 Fixed Costs Purchase of Special Tool $                             461 Total Incremental Cost $                         4,509 Incremental Net operating Income ($5,792-$4,509) $                         1,283

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