Question

Exercise 12-4 Special Order Decision (LO12-4] 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 $263.00 as shown below: $140 86 Direct materials Direct labor Manufacturing overhead Unit product cost 37 $263 The members of a wedding party have approached Imperial Jewelers about buying 29 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 $450 and that would increase the direct materials cost per bracelet by $6. 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, $7.00 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?

Answer 1

Trcunt C Patiadars Arucunt Ct) Per unit 366 Remenue CA) 1061 Neu's Janiable Cests 4060 ieect materdals iretot dabousr 140 8 6 special filigrea Variable M.anyjecheiny Tetal Valriabla toits oveaheads 03 6931 Ied cesta Purchak of fpe cialtoy Total cest Financial aduartage Csicadvantage 450 B) $3932 3.898 arcepting ilue ipecial rder A-B Tinancial advantege.4.33 Noko- e manyheturig oueshead. (oils do ust ddect fhe decivionaccoptig leSpecial ordes. S onle the asce-taken nto uonaider atian. Fretamorctal coits and endlts Can accept the cpecial order. Thugh hs special ordeer belowita waual Yes,the company to conpary 'atcepting s Price ie, puos to $366. We can atcept lu or dat