Most of the manufacturing overhead is fixed and unaffected by variations in how

Question

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However. $12 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 $11 per bracelet and would also require acquisition of a special tool costing $467 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 $361.00 per bracelet is offered for this order? (Enter all amounts as positive values.)

Explanation / Answer

Per unit Total of 17 bracelets Incremental Revenue 361 6137.00 Incremental costs variable cost : Direct materials 148 2516.00 Direct labour 82 1394.00 Variable manufacturing overhead 12 204.00 Special Filigree 11 187.00 Total Variable cost 253 5060 Fixed costs Purchase of special tool 467 Total incremental cost 5527 Incremental Net operating income 610.00 it should be accepted as it adds to the companies net operating income.

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