Question

Imperial Jewellers is considering a special order for 20 handcrafted gold bracelets for a wedding. The gold bracelets are to be given as gifts to members of the wedding party. The normal selling price of a gold bracelet is $191.50 and its unit product cost is $164.00. The customer is willing to pay a special price of $177.50 per bracelet.

The additional materials cost per bracelet for the special order is $6.50. The company will also need to purchase a special tool costing $370 that will have no other use once the special order is completed.
The company has the capacity to fulfill the special order without affecting any other orders.
Should Imperial Jewellers accept the special order?
The company has the capacity to

Answer 1

Imperial Jewellers should accept the special order as it would generate additional profit even with the discounted price.

Step-by-step explanation:

In deciding whether to accept the special order for 20 handcrafted gold bracelets, we need to consider the financial implications. The normal selling price of a bracelet is $191.50 with a unit product cost of $164.00, resulting in a profit of $27.50 per bracelet. However, the customer is offering a special price of $177.50 per bracelet, which is still higher than the unit product cost.

When calculating the profitability of the special order, we need to consider the additional materials cost of $6.50 per bracelet and the one-time purchase of a special tool for $370. This brings the total cost per bracelet to $170.50 ($164.00 + $6.50) and the profit to $7.00 ($177.50 - $170.50).

Based on these calculations, Imperial Jewellers would still make a profit of $7.00 per bracelet if they accept the special order. Since the company has the capacity to fulfill the order without affecting other orders, it would be advantageous for them to accept the special order and generate additional revenue.