Imperial Jewelers is considering a special order for 16 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 16 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bra is $401.00 and its unit product cost is $261.00 as shown below: celet 145 Direct materials Direct labor Manufacturing overhead 82 34 Unit product cost 261 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any 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 $5 per bracelet and would also require acquisition of a special tool costing $469 that would have no other use once the special ordér 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. given period. However, $6 of the overhead is variable with

Explanation / Answer

Per unit Total 16 Bracelets Incremental revenue $         361 16*$361 = $5,776 Incremental cost Variable costs Direct Material $         145 16*$145 = $2,320 Direct Labour $           82 16*$82 = $1,312 Variable manufacturing overhead $             6 16*$6 = $96 Special filigree $             5 16*$5 = $80 Total variable cost $         238 $                         3,808 fixed cost Purchase of special tool $                             469 total incremental cost $                         4,277 Incremental net operating income $                         1,499

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