mperial Jewelers manufactures and sells a gold bracelet for $407.00. The company
ID: 2525539 • Letter: M
Question
mperial Jewelers manufactures and sells a gold bracelet for $407.00. The company’s accounting system says that the unit product cost for this bracelet is $268.00 as shown below:
The members of a wedding party have approached Imperial Jewelers about buying 12 of these gold bracelets for the discounted price of $367.00 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 $463 and that would increase the direct materials cost per bracelet by $13. 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, $14.00 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?
What is the financial advantage (disadvantage) of accepting the special order from the wedding party?
Should the company accept the special order?
YES or NO
Direct materials $ 143 Direct labor 89 Manufacturing overhead 36 Unit product cost $ 268Explanation / Answer
1) Incremental analysis :
Yes The company should accept the special order.
Per unit Total Incremental revenue 367 4404 Incremental cost Direct material 143 1716 Direct labour 89 1068 Variable manufacturing overhead 14 168 Additional material 13 156 Total variable cost 3108 Fixed cost Special tool 463 Total incremental cost 3571 Incremental profit (loss) 833Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.