Exercise 12-4 Evaluating a Special Order [LO12-4] mperial Jewelers is considerin

Question

Exercise 12-4 Evaluating a Special Order [LO12-4] mperial Jewelers is considering a special order for 17 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $402.00 and its unit product cost is $259.00 as shown below: Direct materials Direct labor Manufacturing overhead $143 82 34 Unit product cost $259 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.

Explanation / Answer

Solution:

Per Unit Total 17 Bracelets Incremental Revenue 362 6,154 Incremental costs Variable cost Direct materials 143 2,431 Direct labor 82 1,394 Variable manufacturing overhead 12 204 Special filigree 11 187 Total variable cost 248 4,216 Fixed costs Purchase of special tool 467 Total incremental cost 4,683 Incremental net operating income ( loss ) 1,471

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