Imperial Jewelers is considering a special order for 23handcrafted gold bracelets to be given as gifts to members of awedding party. The normal selling price of a gold bracelet is$407.00 and its unit product cost is $275.00 as shown below:
Direct Materials $149 Direct labor $87 Manufacturing Overhead $39 Unit Product cost $275
Most of the manufacturing overhead is fixed and unaffected byvariations in how much jewelry is produced in any given period.However, $11 of the overhead is variable with respectto the numberof bracelets produced. The customer who is interested in thespecial bracelet order would like special filigree applied to thebracelets. This filigree would require additional materials costing$10 per bracelet and would also require acquisition of a specialtool costing $452 that would have no other use once the specialorder 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:
What effect would accepting this order have on the companyâs netoperating income if a special price of $367.00 per bracelet isoffered for this order?
Per unit
Total 23 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)
Should the special order be accepted at this price?
Yes
No
Imperial Jewelers is considering a special order for 23handcrafted gold bracelets to be given as gifts to members of awedding party. The normal selling price of a gold bracelet is$407.00 and its unit product cost is $275.00 as shown below:
| Direct Materials | $149 |
| Direct labor | $87 |
| Manufacturing Overhead | $39 |
| Unit Product cost | $275 |
Most of the manufacturing overhead is fixed and unaffected byvariations in how much jewelry is produced in any given period.However, $11 of the overhead is variable with respectto the numberof bracelets produced. The customer who is interested in thespecial bracelet order would like special filigree applied to thebracelets. This filigree would require additional materials costing$10 per bracelet and would also require acquisition of a specialtool costing $452 that would have no other use once the specialorder 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:
What effect would accepting this order have on the companyâs netoperating income if a special price of $367.00 per bracelet isoffered for this order?
Per unit | Total 23 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) |
Should the special order be accepted at this price?
Yes
No
Related questions
28.
Imperial Jewelers is considering a special order for 22handcrafted gold bracelets to be given as gifts to members of awedding party. The normal selling price of a gold bracelet is$403.00 and its unit product cost is $266.00 as shown below:
| Direct materials | $ | 142 | |
| Direct labor | 89 | ||
| Manufacturing overhead | 35 | ||
| Unitproduct cost | $ | 266 | |
Most of the manufacturing overhead is fixed and unaffected byvariations in how much jewelry is produced in any given period.However, $6 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 $5 per bracelet and would also require acquisition of aspecial tool costing $462 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 $363.00 per bracelet isoffered for this order? (Enter all amounts as positivevalues.) PerUnit Total 22 Bracelets Incremental Revenue Variable Costs: Direct Materials Direct Labor Variable Manu. Overhead Special Filigree Fixed Costs: Purchash of Special Tool |
