Imperial Jewelers is considering a special order for 21 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 21 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $409.00 and its unit product cost is $266.00 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, $11 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 $10 per bracelet and would also require acquisition of a special tool costing $468 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 $369.00 per bracelet is offered for this order? (Enter all amounts as positive values.)

Imperial Jewelers is considering a special order for 21 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $409.00 and its unit product cost is $266.00 as shown below:

Explanation / Answer

1.

2. Compnay should accept special order, since they can earn an additinal revenue of $555

Per unit Total 21 Bracelets Incremental Revenue $         369 $                         6,273 Incremental Costs Variable Costs Direct Material $         143 $                         3,003 Direct Labour $           86 $                         1,806 Variable Manufacturing OH $           11 $                             231 Special Filigree $           10 $                             210 Total Variable cost $         250 $                         5,250 Fixed Costs Purchase of Special Tool $                             468 Total Incremental Cost $                         5,718 Incremental Net operating Income $                             555

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