Question

In: Accounting

Imperial Jewelers manufactures and sells a gold bracelet for $401.00. The company’s accounting system says that...

Imperial Jewelers manufactures and sells a gold bracelet for $401.00. The company’s accounting system says that the unit product cost for this bracelet is $278.00 as shown below:

Direct materials $ 150
Direct labor 89
Manufacturing overhead 39
Unit product cost $ 278

The members of a wedding party have approached Imperial Jewelers about buying 14 of these gold bracelets for the discounted price of $361.00 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 $458 and that would increase the direct materials cost per bracelet by $12. 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, $13.00 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 the financial advantage (disadvantage) of accepting the special order from the wedding party?

2. Should the company accept the special order?

Solutions

Expert Solution

Answer 1)

Statement of Cost Benefit

Amount (In $)

Sales (14 bracelets X $ 361 per bracelet)

                     5,054

Total (A)

Relevant Costs of Manufacturing Bracelets:

Direct Materials (14 bracelets X $ 162 per bracelet)

                     2,268

Direct Labor (14 bracelets X $ 89 per bracelet)

                     1,246

Variable Manufacturing overheads (14 bracelets X $ 13 per bracelet)

                        182

Purchase price of special tool

                        458

Total Relevant costs (B)

                     4,154

Net Income (A) - (B)

                        900

From the perusal of above statement it is evident that if the special order is accepted, Imperial Jewelers will have additional Net Income of $ 900. Thus the financial advantage of accepting the special order is $ 900.

Note:

Applicable Direct Material cost = $ 150 per bracelet + $ 12 per bracelet

                                                          = $ 162 per bracelet.

· Fixed manufacturing cost is not a relevant cost being unavoidable in nature. Also since there is no additional fixed cost due to acceptance of special order, no part of fixed cost has been charged from the special order.

Answer 2)

Yes, the company should accept the special order as it will provide additional net income of $ 900.


Related Solutions

Imperial Jewelers manufactures and sells a gold bracelet for $409.00. The company’s accounting system says that...
Imperial Jewelers manufactures and sells a gold bracelet for $409.00. The company’s accounting system says that the unit product cost for this bracelet is $271.00 as shown below: Direct materials $ 144 Direct labor 89 Manufacturing overhead 38 Unit product cost $ 271 The members of a wedding party have approached Imperial Jewelers about buying 26 of these gold bracelets for the discounted price of $369.00 each. The members of the wedding party would like special filigree applied to the...
Imperial Jewelers manufactures and sells a gold bracelet for $409.00. The company’s accounting system says that...
Imperial Jewelers manufactures and sells a gold bracelet for $409.00. The company’s accounting system says that the unit product cost for this bracelet is $261.00 as shown below: Direct materials $ 147 Direct labor 84 Manufacturing overhead 30 Unit product cost $ 261 The members of a wedding party have approached Imperial Jewelers about buying 18 of these gold bracelets for the discounted price of $369.00 each. The members of the wedding party would like special filigree applied to the...
Imperial Jewelers manufactures and sells a gold bracelet for $403.00. The company’s accounting system says that...
Imperial Jewelers manufactures and sells a gold bracelet for $403.00. The company’s accounting system says that the unit product cost for this bracelet is $268.00 as shown below: Direct materials $ 141 Direct labor 89 Manufacturing overhead 38 Unit product cost $ 268 The members of a wedding party have approached Imperial Jewelers about buying 24 of these gold bracelets for the discounted price of $363.00 each. The members of the wedding party would like special filigree applied to the...
Imperial Jewelers manufactures and sells a gold bracelet for $407.00. The company’s accounting system says that...
Imperial Jewelers manufactures and sells a gold bracelet for $407.00. The company’s accounting system says that the unit product cost for this bracelet is $259.00 as shown below: Direct materials $ 147 Direct labor 80 Manufacturing overhead 32 Unit product cost $ 259 The members of a wedding party have approached Imperial Jewelers about buying 17 of these gold bracelets for the discounted price of $367.00 each. The members of the wedding party would like special filigree applied to the...
Imperial Jewelers manufactures and sells a gold bracelet for $403.00. The company’s accounting system says that...
Imperial Jewelers manufactures and sells a gold bracelet for $403.00. The company’s accounting system says that the unit product cost for this bracelet is $269.00 as shown below: Direct materials $ 150 Direct labor 83 Manufacturing overhead 36 Unit product cost $ 269 The members of a wedding party have approached Imperial Jewelers about buying 29 of these gold bracelets for the discounted price of $363.00 each. The members of the wedding party would like special filigree applied to the...
Imperial Jewelers manufactures and sells a gold bracelet for $407.00. The company’s accounting system says that...
Imperial Jewelers manufactures and sells a gold bracelet for $407.00. The company’s accounting system says that the unit product cost for this bracelet is $256.00 as shown below: Direct materials $ 141 Direct labor 85 Manufacturing overhead 30 Unit product cost $ 256 The members of a wedding party have approached Imperial Jewelers about buying 11 of these gold bracelets for the discounted price of $367.00 each. The members of the wedding party would like special filigree applied to the...
Imperial Jewelers manufactures and sells a gold bracelet for $401.00. The company’s accounting system says that...
Imperial Jewelers manufactures and sells a gold bracelet for $401.00. The company’s accounting system says that the unit product cost for this bracelet is $254.00 as shown below: Direct materials $ 141 Direct labor 82 Manufacturing overhead 31 Unit product cost $ 254 The members of a wedding party have approached Imperial Jewelers about buying 30 of these gold bracelets for the discounted price of $361.00 each. The members of the wedding party would like special filigree applied to the...
Imperial Jewelers manufactures and sells a gold bracelet for $404.00. The company’s accounting system says that...
Imperial Jewelers manufactures and sells a gold bracelet for $404.00. The company’s accounting system says that the unit product cost for this bracelet is $261.00 as shown below: Direct materials $ 142 Direct labor 88 Manufacturing overhead 31 Unit product cost $ 261 The members of a wedding party have approached Imperial Jewelers about buying 23 of these gold bracelets for the discounted price of $364.00 each. The members of the wedding party would like special filigree applied to the...
Imperial Jewelers manufactures and sells a gold bracelet for $409.00. The company’s accounting system says that...
Imperial Jewelers manufactures and sells a gold bracelet for $409.00. The company’s accounting system says that the unit product cost for this bracelet is $268.00 as shown below: Direct materials $ 144 Direct labor 88 Manufacturing overhead 36 Unit product cost $ 268 The members of a wedding party have approached Imperial Jewelers about buying 19 of these gold bracelets for the discounted price of $369.00 each. The members of the wedding party would like special filigree applied to the...
Imperial Jewelers manufactures and sells a gold bracelet for $407.00. The company’s accounting system says that...
Imperial Jewelers manufactures and sells a gold bracelet for $407.00. The company’s accounting system says that the unit product cost for this bracelet is $269.00 as shown below: Direct materials $ 149 Direct labor 83 Manufacturing overhead 37 Unit product cost $ 269 The members of a wedding party have approached Imperial Jewelers about buying 20 of these gold bracelets for the discounted price of $367.00 each. The members of the wedding party would like special filigree applied to the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT