Imperial Jewelers is considering a special order for 11handcrafted gold bracelets to be given as gifts to members of awedding party. The normal selling price of a gold bracelet is$402.00 and its unit product cost is $265.00 as shown below:
Directmaterials $ 150 Direct labor 84 Manufacturingoverhead 31 Unit productcost $ 265
Most of the manufacturing overhead is fixed and unaffected byvariations in how much jewelry is produced in any given period.However, $7 of the overhead is variable with respect tothe number of bracelets produced. The customer who is interested inthe special bracelet order would like special filigree applied tothe bracelets. This filigree would require additional materialscosting $6 per bracelet and would also require acquisition of aspecial tool costing $459 that would have no other use once thespecial order is completed. This order would have no effect on thecompanyâs regular sales and the order could be fulfilled using thecompanyâs existing capacity without affecting any other order.
Required:
1. What effect would accepting this order have on the companyâs netoperating income if a special price of $362.00 per bracelet isoffered for this order? (Enter all amounts as positivevalues.)
PER UNIT TOTAL 11 BRACELETS incremental revenue incremental costs: Variable costs: direct materials direct labor variable manufacturing overhead special filigree Total variable cost: Fixed costs: purchase of tool Total incremental cost Incremental net operating income (loss)
2. Should the special order be accepted at this price?
Imperial Jewelers is considering a special order for 11handcrafted gold bracelets to be given as gifts to members of awedding party. The normal selling price of a gold bracelet is$402.00 and its unit product cost is $265.00 as shown below: |
Directmaterials | $ | 150 | |
Direct labor | 84 | ||
Manufacturingoverhead | 31 | ||
Unit productcost | $ | 265 | |
Most of the manufacturing overhead is fixed and unaffected byvariations in how much jewelry is produced in any given period.However, $7 of the overhead is variable with respect tothe number of bracelets produced. The customer who is interested inthe special bracelet order would like special filigree applied tothe bracelets. This filigree would require additional materialscosting $6 per bracelet and would also require acquisition of aspecial tool costing $459 that would have no other use once thespecial order is completed. This order would have no effect on thecompanyâs regular sales and the order could be fulfilled using thecompanyâs existing capacity without affecting any other order. |
Required: |
1. | What effect would accepting this order have on the companyâs netoperating income if a special price of $362.00 per bracelet isoffered for this order? (Enter all amounts as positivevalues.)
2. Should the special order be accepted at this price? |