EXERCISE 12-4 Evaluating a Special Order ILO2] Sato Jewellers has had a request

Question

EXERCISE 12-4 Evaluating a Special Order ILO2] Sato Jewellers has had a request for a special order for 10 gold bangles for the members of a wedding party. The normal selling price of a gold bangle is $389.95 and its unit product cost is 264.00, as shown below: Direct labour.... Manufacturing overhead Unit product cost 86.00 3500 400 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewel- lery is produced in any given period. However, $7 of the overhead is variable, depending on the number of bangles produced. The customer would like special filigree applied to the bangles. This filigree would require additional materials costing $6 per bangle and would also require acquisition of a special tool costing $465 that would have no other use once the special order was completed. This order would have no effect on the company's regular sales, and the order could be filled using the company's existing capacity without affecting any other order

Explanation / Answer

Per unit Total 10 bangles Incremental revenue 349.95 3499.5 Incremental costs: Variable costs: Direct materials 143 1430 Direct labor 86 860 Variable manufacturing overhead 7 70 Special filgree 6 60 Total variable cost 242 2420 Fixed costs: Purchase of special tool 465 Total Incremental costs 2885 Incremental net operating income(loss) 614.5 2 Yes accept the special order

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