Imperial Jewelers is considering a special order for 27 hand

Imperial Jewelers is considering a special order for 27 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $407.00 and its unit product cost is $266.00 as shown below S 143 85 38 S 266 Direct materials Direct labor Unit product cost Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $9 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 $8 per bracelet and would also require acquisition of a special tool costing S463 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 $367.00 per bracelet is offered for this order? (Enter all amounts as positive values.) Per Total 27 Unit 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?

Solution

2. The special order should be accepted at this price because the order is giving an additional income of 2831.

	Per Unit	Total 27 Bracelets
Incremental revenue	367	9909
Less: Incremental costs:
Variable costs
Direct material	143	3861
Direct labour	85	2295
Variable manufacturing overhead	9	243
Special filigree	8	216
Total variable cost	245	6615
Fixed cost
Purchase of special tool		463
Total incremental cost		7078
Incremental operating income		2831