Imperial Jewelers is considering a special order for 13 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 13 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $410.00 and its unit product cost is $262.00 as shown belovw Direct materials Direct labor Manufacturing overhead $145 80 37 Unit product cost $ 262 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $13 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 $12 per bracelet and would also require acquisition of a special tool costing $467 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

Explanation / Answer

1) Incremental analysis :

2) Yes, special order should be accepted

Incremental revenue (13*370) 4810 Incremental cost Direct material (13*145) (1885) Direct labour (13*80) (1040) Variable manufacturing overhead (13*13) (169) Special filigree (13*12) (156) Total variable cost (3250) Fixed cost Purchase of special tool (467) Total incremental cost (3717) Incremental net operating income 1093

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