Compute the company’s residual income for the year. MAYA Jewelers is considering
ID: 2418286 • Letter: C
Question
Compute the company’s residual income for the year. MAYA Jewelers is considering a special order for 10 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $500 and its unit product cost is $264 as shown below.
Direct Materials ……………………………………..$143.00
Direct Labor……………………………………………. 86.00
Manufacturing Overhead……………………….. 35.00
Unit Product Cost……………………………………$264.00
Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $7 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 material costing $6 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 $349.95 is offered per bracelet for this order? Should the special order be accepted at this price?
Direct Materials ……………………………………..$143.00
Direct Labor……………………………………………. 86.00
Manufacturing Overhead……………………….. 35.00
Unit Product Cost……………………………………$264.00
Explanation / Answer
The overall company net operating income will increase by $ 614.5 if special order is accepted.
2)Yes,the order should be accepted.
Incremental revenue [349.95 * 10] 3499.5 Less:Material cost [143+ 6] = 149 *10 -1490 Labor cost [ 86*10] -860 Variable overhead [7*10] -70 Tool cost -465 Incremental income /(loss) 614.5Related Questions
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