Imperial Jewelers manufactures and sells a gold bracelet for $40200. The company

Question

Imperial Jewelers manufactures and sells a gold bracelet for $40200. The company's accounting system says that the unit product cost for this bracelet is $268.00 as shown below Direct materials Direct labor $142 Menufacturing overhead38 Unit product cost $268 The members of a wedding party have approached Imperial Jewelers about buying 14 of these gold bracelets for the discounted price of $362.00 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 $464 and that would increase the direct materials cost per bracelet by $10. 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, $11.00 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 company accept the special order?

Explanation / Answer

1) Calculation of financial advantage

Evaluation of special offer

Hence financial advantage of accepting the special order is 1090$.

2) Yes,Since the special offer is profitable, company should accept the offer.

Particulars Amount (in $) Additional sales (14*362) 5068 less: Direct material (14*152) (2128) less: Direct labour(14*88) (1232) less: Additional Mfg OH (14*11) (154) less: Cost of special tool (464) Profit from special offer 1090

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