mperial Jewelers manufactures and sells a gold bracelet for $406.00. The company

Question

mperial Jewelers manufactures and sells a gold bracelet for $406.00. The company's accounting system says that the unit product cost for this bracelet is $263.00 as shown below: Direct materials Direct labor Manufacturing overhead34 Unit product cost $146 83 263 The members of a wedding party have approached Imperial Jewelers about buying 18 of these gold bracelets for the discounted price of $366.00 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 $451 and that would increase the direct materials cost per bracelet by $11. 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, $12.00 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? Complete this question by entering your answers in the tabs below Required 1 Required 2 What is the financial advantage (disadvantage) of accepting the special order from the wedding party? Financial advantage

Explanation / Answer

Answer

Per unit Total 18 bracelets Incremental revenue 366 6588 Incremental costs: Variable costs: Direct materials 146 2628 Direct labor 83 1494 Variable manufacturing overhead 12 216 Special filgree 11 198 Total variable cost 252 4536 Fixed costs: Purchase of special tool 451 Total Incremental costs 4987 Incremental net operating income(loss) 1601

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