Imperial Jewelers is considering a special order for 23 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 23 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $401.00 and its unit product cost is $269.00 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, $9 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 $8 per bracelet and would also require acquisition of a special tool costing $461 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.)

Imperial Jewelers is considering a special order for 23 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $401.00 and its unit product cost is $269.00 as shown below:

Explanation / Answer

Per unit Total 23 bracelets Incremental revenue 361 8303 Incremental costs: Variable costs: Direct materials 147 3381 Direct labor 86 1978 Variable manufacturing overhead 9 207 Special filgree 8 184 Total variable cost 250 5750 Fixed costs: Purchase of special tool 461 Total Incremental costs 6211 Incremental net operating income(loss) 2092 2 Yes

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