Imperial Jewelers manufactures and sells a gold bracelet for $189.95. The compan

Question

Imperial Jewelers manufactures and sells a gold bracelet for $189.95. The company’s accounting system says that the unit product cost for this bracelet is $149.00 as shown below:

The members of a wedding party have approached Imperial Jewelers about buying 20 of these gold bracelets for the discounted price of $169.95 each. The members of the wedding party would like special filigree applied to the bracelets that would require Imperial Jewelers to buy a special tool for $250 and that would increase the direct materials cost per bracelet by $2.00. The special tool would have no other use once the special order is completed.

To analyze this special order opportunity, Imperial Jewelers has determined that most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $4.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes that accepting this order would have no effect on its ability to produce and sell jewelry to other customers. Furthermore, the company could fulfill the wedding party’s order using its existing manufacturing capacity.

Required:

1. What is the financial advantage (disadvantage) of accepting the special order from the wedding party?

2. Should the company accept the special order?

Direct materials $ 84.00 Direct labor 45.00 Manufacturing overhead 20.00 Unit product cost $ 149.00

Explanation / Answer

Per unit Total 20 bracelets Incremental revenue 169.95 3399 Incremental costs: Variable costs: Direct materials 84 1680 Direct labor 45 900 Variable manufacturing overhead 4 80 Special filgree 2 40 Total variable cost 135 2700 Fixed costs: Purchase of special tool 250 Total Incremental costs 2950 Incremental net operating income(loss) 449 2 Yes

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.