Imperial Jewelers manufactures and sells a gold bracelet for $401.00. The compan

Question

Imperial Jewelers manufactures and sells a gold bracelet for $401.00. 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 overhead Unit product cost $146 83 34 $263 The members of a wedding party have approached Imperial Jewelers about buying 30 of these gold bracelets for the discounted price of $361.00 each. The members of the wedding party would like special filigree applied to the bracelets that would require Imperi Jewelers to buy a special tool for $460 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

Explanation / Answer

2. yeas Company Should accept the special order

Calculate financial advantage on special order : Incremental revenue (30*$361) (A) $10,830 Less: Incremental cost Direct material (30*$146) $4,380 Direct labour (30*$83) $2,490 Variable overhead (30*$11) $330 Additional Cost of material (30*$10) $300 Special tool $460 Total incremental cost (B) $7,960 Incremental profit(A-B) $2,870

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