Imperial Jewelers manufactures and sells a gold bracelet for$409.00. The company's accounting system says that the unit productcost for this bracelet is $265.00 as shown below:
Direct materials$ 149
Direct labor 84
Manufacturing overhead 32
Unit product cost $265
The members of a wedding party have approached ImperialJewelers about buying 20 of these gold bracelets for the discountedprice of $369.00 each. The members of the wedding party would likespecial filigree applied to the bracelets that would requireImperial Jewelers to buy a special tool for $465 and that wouldincrease the direct materials cost per bracelet by $13. The specialtool 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, $14.00 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 thefinancial advantage (disadvantage) of accepting the special orderfrom the wedding party?
2. Should the company accept the specialorder?
Answers: 2
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Imperial Jewelers manufactures and sells a gold bracelet for$409.00. The company's accounting system...
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