Imperial Jewelers is considering a special order for 24 handcrafted gold bracele
ID: 2474451 • Letter: I
Question
Imperial Jewelers is considering a special order for 24 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 $269.00 as shown below:
Direct materials$147 Direct labor 87 Manufacturing overhead 35 Unit product cost$269
Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $10 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 $9 per bracelet and would also require acquisition of a special tool costing $464 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 $362.00 per bracelet is offered for this order? (Enter all amounts as positive values.)
Incremental revenue
Incremental costs:
Variable costs:
Direct materials
Direct labor
Variable manufacturing overhead
Special filigree
Total variable cost
Fixed costs:
Purchase of special tool
Total incremental cost
Incremental net operating income (loss)
Note: Per Unit and Total 24 Bracelets
Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $10 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 $9 per bracelet and would also require acquisition of a special tool costing $464 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.
Required:What effect would accepting this order have on the company’s net operating income if a special price of $362.00 per bracelet is offered for this order? (Enter all amounts as positive values.)
Incremental revenue
Incremental costs:
Variable costs:
Direct materials
Direct labor
Variable manufacturing overhead
Special filigree
Total variable cost
Fixed costs:
Purchase of special tool
Total incremental cost
Incremental net operating income (loss)
Note: Per Unit and Total 24 Bracelets
Explanation / Answer
Particulars
No. of Units
Per unit amount ($)
Total Amount ($)
Incremental revenue
24
362
8,688
Incremental costs
A. Variable costs
Direct materials
24
147
3,528
Direct labor
24
87
2,088
Variable manufacturing overhead
24
10
240
Special filigree
24
9
216
Total variable cost
253
6,072
B. Fixed costs:
Purchase of special tool
464
Total incremental cost ($6,072 + $464)
6,536
Incremental net operating income (loss)
2,152
Particulars
No. of Units
Per unit amount ($)
Total Amount ($)
Incremental revenue
24
362
8,688
Incremental costs
A. Variable costs
Direct materials
24
147
3,528
Direct labor
24
87
2,088
Variable manufacturing overhead
24
10
240
Special filigree
24
9
216
Total variable cost
253
6,072
B. Fixed costs:
Purchase of special tool
464
Total incremental cost ($6,072 + $464)
6,536
Incremental net operating income (loss)
2,152
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