Imperial Jewelers is considering a special order for 13 handcrafted gold bracele
ID: 2473998 • Letter: I
Question
Imperial Jewelers is considering a special order for 13 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $400.00 and its unit product cost is $274.00 as shown below:
Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $8 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 $7 per bracelet and would also require acquisition of a special tool costing $469 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 $360.00 per bracelet is offered for this order? (Enter all amounts as positive values.)
Per Unit Total 13 Bracelets
Incremental Revenue
Incremental Costs
Variable Costs
Direct Materials
Direct Labor
Variable Manufactuing Overhaead
Special Filgree
Total Variable Costs
Total Fixed Costs
Purchase of Special Tool
Total Incremental Cost
Incremental net operating income (loss)
Direct materials $ 146 Direct labor 89 Manufacturing overhead 39 Unit product cost $ 274Explanation / Answer
Per Unit Total Incremental Revenue 360 4680 Incremental Costs Variable Costs Direct Materials 146 1898 Direct Labor 89 1157 Variable Manufacturing Overhead 8 104 Special Filgree 7 91 Total Variable Costs 250 3250 Total Fixed Costs Purchase of special Tool 469 469 Incremental Net income 719 3719 Incremental Revenue 961
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