Imperial Jewelers manufactures and sells a gold bracelet for $406.00. The company’s accounting system says that...

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Accounting

Imperial Jewelers manufactures and sells a gold bracelet for$406.00. The company’s accounting system says that the unit productcost for this bracelet is $265.00 as shown below:
Direct materials $ 144
Direct labor 81
Manufacturing overhead 40
Unit product cost $ 265
The members of a wedding party have approached Imperial Jewelersabout buying 20 of these gold bracelets for the discounted price of$366.00 each. The members of the wedding party would like specialfiligree applied to the bracelets that would require ImperialJewelers to buy a special tool for $464 and that would increase thedirect materials cost per bracelet by $13. The special tool wouldhave no other use once the special order is completed.
To analyze this special order opportunity, Imperial Jewelers hasdetermined that most of its manufacturing overhead is fixed andunaffected by variations in how much jewelry is produced in anygiven period. However, $14.00 of the overhead is variable withrespect to the number of bracelets produced. The company alsobelieves that accepting this order would have no effect on itsability to produce and sell jewelry to other customers.Furthermore, the company could fulfill the wedding party’s orderusing its existing manufacturing capacity.
Required: 1. What is the financial advantage (disadvantage) ofaccepting the special order from the wedding party? 2. Should thecompany accept the special order?

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3.7 Ratings (319 Votes)

For taking the decesion we should only consider the incremental costs and benefits are relevant In particular only the variable manufacturing overhead and the cost of the See Answer

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Transcribed Image Text

Imperial Jewelers manufactures and sells a gold bracelet for$406.00. The company’s accounting system says that the unit productcost for this bracelet is $265.00 as shown below:Direct materials $ 144Direct labor 81Manufacturing overhead 40Unit product cost $ 265The members of a wedding party have approached Imperial Jewelersabout buying 20 of these gold bracelets for the discounted price of$366.00 each. The members of the wedding party would like specialfiligree applied to the bracelets that would require ImperialJewelers to buy a special tool for $464 and that would increase thedirect materials cost per bracelet by $13. The special tool wouldhave no other use once the special order is completed.To analyze this special order opportunity, Imperial Jewelers hasdetermined that most of its manufacturing overhead is fixed andunaffected by variations in how much jewelry is produced in anygiven period. However, $14.00 of the overhead is variable withrespect to the number of bracelets produced. The company alsobelieves that accepting this order would have no effect on itsability to produce and sell jewelry to other customers.Furthermore, the company could fulfill the wedding party’s orderusing its existing manufacturing capacity.Required: 1. What is the financial advantage (disadvantage) ofaccepting the special order from the wedding party? 2. Should thecompany accept the special order?