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Imperial Jewelers is considering a special order for 20 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $189.95 and its unit product cost is $149.00 as shown below:

Direct materials $84.00
Direct labor 45.00
Manufacturing overhead 20.00
--------------------
Unit product cost $149.00
===============

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $4.00 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 $2.00 per bracelet and would also require acquisition of a special tool costing $250 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.


What effect would accepting this order have on the company's net operating income if a special price of $169.95 per bracelet is offered for this order (the net operating income will increased but I'm not sure by what)?

Respuesta :

mchaid015

Answer:

Increased by $449

Explanation:

First, let’s compute the relevant costs on this special order gold bracelets.

Direct materials ($84+$2) $86.00

Direct labor 45.00

Variable overhead 4.00

————

Total cost per unit $135.00

Then, compute the total cost of production

20 gold bracelets x $135 = $2,700

add: cost of special tool 250

———-

Total cost for special order $2,950

Now, we can get the increase in operating income from special order.

Sales price ($169.95 x 20) $3,399

Less: cost to manufacture 2,950

———

Income from special order $449

*cost of the special tool will be charged outright as expense against the special order because it will become of no use after the order.

The net operating income will increased by $449.

What is operating income?

Operating income refers to the adjusted revenue of a company after all expenses of operation and depreciation are subtracted. Expenses of operation or operating expenses are simply the costs incurred in order to keep the business running.

Calculation of the Net operating income:

Direct materials ($84+$2)       =                  $86.00

Direct labor                             =                    45.00

Variable overhead                  =                     4.00

                                                                  ---------------

Total cost per unit                  =                    $135.00

Then, compute the total cost of production

20 gold bracelets x $135   =                        $2,700

add: cost of special tool    =                            250

                                                                      -----------

Total cost for special order  =                       $2,950

so we get the increased operating income from the special bracelet.

Sales price ($169.95 x 20)  =                           $3,399

Less: cost to manufacture  =                             2,950

                                                                           ----------

Income from special order =                                $449

Learn more about overheads here:

https://brainly.com/question/19130334

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