hmips 1667 points Exercise 104 Evaluating a Special Order LO

hm.ips 16.67 points Exercise 10-4 Evaluating a Special Order [LO10-4] Imperial Jewelers is considering a special order for 19 handorafted gold bracelets to be given as gifts to members of a wedding party The normal selling price of a gold bracelet is 5402.00 and is unit product cost s$270.00 as shown below Direct materials Direct labor 145 85 40 Manufacturing overheard Unit product cost $270 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any glven period. However, $10 of the overhead is variable with respect to the number produced The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This ligree would require additional materials costing $9 per bracelet and would also require acquisition of a special tool costing $465 that would have no other use once the special order is completed This order would have no elfect on the company\'s regular sales and the order could be fulfilled using the company\'s existing capacity without affecting any other order of bracelets Required: 1. What effect would accepting this order have on the company\'s net operating income if a special price of $362 00 per bracelet is oflered for this order? (Enter all amounts as positive values.) UnitB Incremental revenue Incremental costs Variable costs Direct materials Direct labor Varlable manufacturing overhead Special filigree Total variable cost Flxed costs Purchase of spacial tool Total incremental cost Incremental net operating income (loss) 2. Should the special ceder be accepted at this price? ??

Solution

Increased Profit = $1682

Yes,the special order is accepted at this price.

PARTICULARS	UNITS	$	TOTAL
Sales Value	19	$362	$6878
LESS:-
Direct Materials	19	$145	$2755
Direct Labour	19	$85	$1615
Manufacturing Overhead Variable	19	$10	$190
Additional Materials	19	$9	$171
Balance			$2147
Special Tool Costing			$465
Profit			$1682