Imperial Jewelers is considering a special order for 17 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 17 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 $269.00 as shown below:

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 $465 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.

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.)

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Imperial Jewelers is considering a special order for 17 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 $269.00 as shown below:

Explanation / Answer

The margin realized when a bracelet is manufactured is

Sales price = 405

Cost p.u = (269)

Other variable expense = (8)

So, marigin per bracelet is = $128

Now for the special order

total revenue = 365*17 = 6205

Costs are:

1. Unit variable price 269 * 17 = 4573

2.Other variable = 8*17 = 136

3.Special Material = 7*17 = 119

4. Cost of the machine = 465

Total cost = 5293

Total profit realized = 6205-5293 = $912

Note: The cost of machine is charged entirely for this job work since , it is acquired specially for this work , so the entire cost should be borne by the job

At the given price, the comapny can accept the order, since the net benefit is positive and it will not hamper the existing operations of the company.

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