Imperial Jewelers manufactures and sells a gold bracelet for $403.00. The compan

Question

Imperial Jewelers manufactures and sells a gold bracelet for $403.00. The company's accounting system says that the unit product cost for this bracelet is $261.00 as shown below: Direct materials Direct 1abor Manufacturing overhead40 Unit product cost $141 80 $261 The members of a wedding party have approached Imperial Jewelers about buying 22 of these gold bracelets for the discounted price of $363.00 each. The members of the wedding party would like special filigree applied to the bracelets that would require Imperial Jewelers to buy a special tool for $457 and that would increase the direct materials cost per bracelet by $8. The special tool would have no other use once the special order is completed. To analyze this special order opportunity, Imperial Jewelers has determined that most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $9.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes that accepting this order would have no effect on its ability to produce and sell jewelry to other customers. Furthermore, the company could fulfill the wedding party's order using its existing manufacturing capacity. Required 1. What is the financial advantage (disadvantage) of accepting the special order from the wedding party? 2. Should the companv accept the special order? What is the financial advantage (disadvantage) of accepting the special order from the wedding party? inancial advantage

Explanation / Answer

2)Yes

per total for unit 22 barcelets incremental revenue 363 7986 Incremental costs: Variable costs: Direct Materials 141 3102 Direct labor 80 1760 Variable manufacturing overhead 40 880 Special filigree 8 176 total variable cost 269 5918 Fixed costs: purchase of special tool 457 total incremental cost 6375 incremental operating income 1611 Financial advantage $1,611

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