Sato Jewellers has had a request for a special order for 10 gold bangles for the
ID: 2584355 • Letter: S
Question
Sato Jewellers has had a request for a special order for 10 gold bangles for the members of a wedding party. The normal selling price of a gold bangle is $277.50 and its unit product cost is $185.00, as shown below:
Direct materials $ 103.00
Direct labour 62.00
Manufacturing overhead 20.00
Unit product cost $ 185.00
Most of the manufacturing overhead is fixed and unaffected by variations in how much jewellery is produced in any given period. However, $4 of the overhead is variable, depending on the number of bangles produced. The customer would like special filigree applied to the bangles. This filigree would require additional materials costing $3 per bangle and would also require acquisition of a special tool costing $315 that would have no other use once the special order was completed. This order would have no effect on the company’s regular sales, and the order could be filled using the company’s existing capacity without affecting any other order.
What effect would accepting this order have on the company’s operating income if a special price of $242.50 is offered per bangle for this order? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. Should the special order be accepted at this price?
Yes No
a.What effect would accepting this order have on the company’s operating income if a special price of $242.50 is offered per bangle for this order? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Net opreaing income( )by( ).Explanation / Answer
Per unit Total Incremental revenue 242.5 2425 Incremental costs: variable costs: Direct materials 103 1030 Direct labour 62 620 Variable Manufacturing overhead 4 40 Special filigree 3 30 Total variable costs 172 1720 Fixed costs Purchase of special tool 315 Total Incremental costs 2035 Incremental income 390 b Yes the special order should be accepted at this price
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