Question

Exercise 11-4 Special Order Decision (LO11-4] Imperial Jewelers manufactures and sells a gold bracelet for $401.00. The company's accounting system says that the unit product cost for this bracelet is $262.00 as shown below: $141 86 Direct materials Direct labor Manufacturing overhead Unit product cost 35 $262 The members of a wedding party have approached Imperial Jewelers about buying 26 of these gold bracelets for the discounted price of $361.00 each. The members of the wedding party would like special filigree applied to the bracelets that would require Imperial Jewelers to buy a special tool for $457 and that would increase the direct materials cost per bracelet by $11. The special tool would have no other use once the special order is completed. To analyze this special order opportunity, Imperial Jewelers has determined that most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $12.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes that accepting this order would have no effect on its ability to produce and sell jewelry to other customers. Furthermore, the company could fulfill the wedding party's order using its existing manufacturing capacity. Required: 1. What is the financial advantage (disadvantage) of accepting the special order from the wedding party? 2. Should the company accept the special order? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the financial advantage (disadvantage) of accepting the special order from the wedding party? < Required 1 Required 2 >

Answer 1

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Imperial Jewelers
Answer 1
Relevant cost of accepting the special order:	Amount $
Direct Materials (141+11)	152.00
Direct Labor	86.00
Variable Overhead	12.00
Total cost per unit	250.00
Number of units ordered	26.00
Total Variable cost	6,500.00
Add: Cost of special tool	457.00
Total cost of special order	6,957.00
Sell price per unit	361.00
Number of units ordered	26.00
Total sales	9,386.00
Financial advantage (Sales less cost of special order)	2,429.00
So the company will have Financial advantage of $ 2,429 from accepting the special order.
Answer 2
As the company has financial advantage so yes the order should be accepted.