Question

Imperial Jewelers manufactures and sells a gold bracelet for $406.00. The company’s accounting system says that the unit product cost for this bracelet is $256.00 as shown below: Direct materials $ 146 Direct labor 80 Manufacturing overhead 30 Unit product cost $ 256 The members of a wedding party have approached Imperial Jewelers about buying 16 of these gold bracelets for the discounted price of $366.00 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 $453 and that would increase the direct materials cost per bracelet by $8. 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, $9.00 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?

Imperial Jewelers manufactures and sells a gold bracelet for $406.00. The company's accounting system says that the unit product cost for this bracelet is $256.00 as shown below: $146 Direct materials Direct labor Manufacturing overhead Unit product cost 30 $256 The members of a wedding party have approached Imperial Jewelers about buying 16 of these gold bracelets for the discounted price of $366.00 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 $453 and that would increase the direct materials cost per bracelet by $8. 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, $9.00 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

1) calculation of Financial advantage/disadvantage
particulars			per unit	total@16
incremental revenue (a)			366	5856	366*16
incremental cost
variable cost
direct material			146	2336	146*16
direct labor			80	1280	80*16
variable manufacturing overhead			9	144	9*16
additional material			8	128	8*16
total variable cost			243	3888
Fixed cost
special tool				453
total incremental cost (b)				4341
Incremental profit /loss (a)-(b)				1515
2) there is financial advantage = 1515
yes accept special order

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