Imperial Jewelers is considering a special order for 15 handcrafted gold bracele

Question

Imperial Jewelers is considering a special order for 15 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 $266.00 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, $8 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 $7 per bracelet and would also require acquisition of a special tool costing $459 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 $369.00 per bracelet is offered for this order? (Enter all amounts as positive values.) Should the special order be accepted at this price?

Explanation / Answer

Per Unit Total 15 units Incremental Revenue 369 5535 Incremental Costs Variable Costs :   Direct Material 147 2205 Direct Labour 81 1215 Variable manufacturing o/h 8 120 Special Filigree 7 105 Total Variable costs Fixed Costs 30 purchase of special tool 459 total incremental cost 4134 incremental net operating income / loss 1401 Yes, the special order should be accepted because it has net benefit

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