Question

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 $266.00 as shown below: direct materials $ 140 direct labor 87 manufacturing overhead 39 unit product cost $ 266 the members of a wedding party have approached imperial jewelers about buying 17 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 increase the direct materials cost per bracelet by $8. imperial jewelers would also have to buy a special tool for $465 to apply the filigree to the bracelets. 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, $9.00 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: what is the financial advantage (disadvantage) of accepting the special order from the wedding party?

Answer 1

The financial advantage of accepting the special order from the wedding party is $4601.

Step-by-step explanation:

To analyze the financial advantage or disadvantage of accepting the special order from the wedding party, we need to calculate the additional costs and any increase in revenue associated with the order.

Additional costs:

• Direct materials cost increase per bracelet: $8 x 17 = $136
• Cost of special tool: $465

Total additional costs: $136 + $465 = $601

Revenue increase:

• Discounted price per bracelet: $401 - ($361 - $266) = $306

Total revenue increase: $306 x 17 = $5202

Financial advantage (disadvantage) = Total revenue increase - Total additional costs

= $5202 - $601 = $4601

Therefore, the financial advantage of accepting the special order from the wedding party is $4601.