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Imperial Jewelers manufactures and sells a gold bracelet for $408.00. The company’s accounting system says that the unit product cost for this bracelet is $268.00 as shown below:

Direct materials $147
Direct labor 85
Manufacturing overhead 36
Unit product cost $268


The members of a wedding party have approached Imperial Jewelers about buying 30 of these gold bracelets for the discounted price of $368.00 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 $452 and that would increase the direct materials cost per bracelet by $9. 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, $15.00 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:
a. What is the financial advantage (disadvantage) of accepting the special order from the wedding party?
b Should the company accept the special order?

Respuesta :

Answer:

2352, Yes

Explanation:

a) Incremental Cost = Direct Material cost + Direct labour cost + Filgree + Manufacturing overhead cost  

= 147 + 85 + 9 +  15 = 256

Total additional Cost = 256 x 21 = 5376

Incremental Revenue = 368

Total additional Revenue = 368 x 21 = 7728

Incremental net operating income = Total additional revenue - total additional cost

= 7728 - 5376 = 2352

b) As Incremental net operating income is positive, company is earning from the special order. Yes, it should accept it

 

The relevant costs for a decision to accept the special order are  :

1. Incremental Revenue from the special order  

2. incremental variable cost

3. The cost of the special tool

  • Unit variable cost = 147+ 85 + 9 + 15 = $256

The balance of manufacturing overhead would be incurred either way. Therefore, they are not relevant for the decision

                                                                                                     

Sales revenue from special order                                                $

(21× $368)                                                                                  7728

The Variable cost of special order                                                $

(21× $256)                                                                                    (5376 )

Financial advantage                                                                     2358

  • The company should accept the special order, as it will increase its profit by $2352

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https://brainly.com/question/16251128?referrer=searchResults

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