Imperial Jewelers is considering a special order for 28 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 28 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $405.00 and its unit product cost is $267.00 as shown below: Direct materials Direct labor Manufacturing overhead $148 83 36 Unit product cost 267 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $8 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 $7 per bracelet and would also require acquisition of a special tool costing $466 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 1. What effect would accepting this order have on the company's net operating income if a special price of $365.00 per bracelet is offered for this order? (Enter all amounts as positive values.) Per Total 28 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)

Explanation / Answer

1. calculate effect of special order :

per unit Total 28 bracelets Incremental revenue 365 10220 Incremental cost Direct material 148 4144 Direct labour 83 2324 Variable manufacturing overhead 8 224 Special filigree 7 196 total variable cost 246 6888 Fixed cost Purchase of special tool 466 Total incremental cost 7354 Incremental net operating income (loss) 2866

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