Exercise 10-4 Evaluating a Special Order [LO10-4] Imperial Jewelers is consideri
ID: 2582029 • Letter: E
Question
Exercise 10-4 Evaluating a Special Order [LO10-4] Imperial Jewelers is considering a special order for 22 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $408.00 and its unit product cost is $262.00 as shown below:
Direct materials $ 141
Direct labor 87
Manufacturing overhead 34
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, $14 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 $13 per bracelet and would also require acquisition of a special tool costing $460 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: 1. What effect would accepting this order have on the company’s net operating income if a special price of $368.00 per bracelet is offered for this order? (Enter all amounts as positive values.)
Note: Per Unit and Total 24 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)
2. Should the special order be accepted at this price? Yes No
Explanation / Answer
Per unit Total 22 Bracelets Incremental revenue 368 8096 Incremental costs: Variable costs: 0 Direct materials 141 3102 Direct labor 87 1914 Variable manufacturing overhead 14 308 Special filigree 13 286 Total variable cost 255 5610 Fixed costs: Purchase of special tool 460 Total incremental cost 6070 Incremental net operating income (loss) 2026 Yes, the special order be accepted at this price Note: 22 bracelets is mentioned at the top of question however it is also mentioned 24 at one place. The above solution is based on 22 bracelets
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