Imperial Jewelers is considering a special order for 14 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 14 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 $265.00 as shown belovw Direct materials Direct labor Manufacturing overhead $ 143 83 39 Unit product cost $ 265 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $5 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 $4 per bracelet and would also require acquisition of a special tool costing $464 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 Required 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.) Per Total 14 Unit Bracelets Incremental revenue Incremental costs Variable costs Direct materials Direct labor Variable manufacturing overhead Special filigree Total variable cost Fixed costs: Purchase of special tool Total incremental cost Incremental net operating income (loss) Should the special order be accepted at this price? Yes 0

Explanation / Answer

a) Incremental analysis :

b) Yes, Special order should be accepted

Per unit Total Incremental revenue 369 5166 Incremental cost Direct material 143 2002 Direct labour 83 1162 Variable manufacturing overhead 5 70 Special filigree 4 56 Total variable cost 235 3290 Fixed cost Purchase of special tool 464 Total incremental cost 3754 Incremental net operating income (loss) 1412

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