Question

Imperial Jewelers is considering a special order for 23 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $403.00 and its unit product cost is $261.00 as shown below. Direct materials Direct labor Manufacturing overhead $ 142 87 Unit product cost $ 261 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $15 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 S14 per bracelet and would also require acquisition of a special tool costing $466 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. Required: 1. What effect would accepting this order have on the company's net operating income if a special price of $363.00 per bracelet is offered for this order? (Enter all amounts as positive values.) Per Unit Total 23 Bracelets Incremental revenue Incremental costs: Variable costs: Direct materials Direct labor Variable manufacturing overheadſ 0 Special filigree Total variable cost Fixed costs: Purchase of special tool Total incremental cost Incremental net operating income (loss) 2. Should the special order be accepted at this price? Yes O No

Answer 1

Answer 1.
The incremental cost is computed as follows:-
Particulars	Cost per unit(in $)	Total 23 braceletes(in $)
Incremental Revenue(23*363)(Z)		8349
Incremental Cost :-
Variable Cost:
Direct Material	142	3,266
Direct Labour	87	2,001
Variable manufacturing overhead	15	345
Additional modification material	14	322
Total Variable cost(U)	258	5,934
Fixed Cost:
Special tool cost		466
Total Fixed Cost(V)		466
Total incremental cost (W) =(U)+(V)		6,400
Incremental net operating income or( loss){(Z)-(W)}		1,949
Answer 2:-
Yes special offer will be accepted