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 $405.00 and its unit product cost is $275.00 as shown below:

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 $468 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.

What effect would accepting this order have on the company’s net operating income if a special price of $365.00 per bracelet is offered for this order?

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 $405.00 and its unit product cost is $275.00 as shown below:

Explanation / Answer

Statement showing computations Particulars Per unit Total 13 Bracelets Incremental Revenue       365.00                        4,745.00 Incremental Costs: Variable Costs: Direct Materials       149.00                        1,937.00 Direct Labour         88.00                        1,144.00 Variable manufacturing overhead            5.00                              65.00 Special filigree            4.00                              52.00 Total Variable cost       246.00                        3,198.00 Fixed Costs: Purchase of special tool                           468.00 Total Incremental Cost                        3,666.00 Incremental net operating income(loss)                        1,079.00

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