Question

The members of a wedding party have approached Imperial Jewelers about buying 26 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 bracelets that would require Imperial Jewelers to buy a special tool for $457 and that would increase the direct materials cost per bracelet by $7. 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, $8.00 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.

Answer 1

this special order will result in a $2,637 profit, so the company should accept it

Step-by-step explanation:

special order for 26 gold bracelets

discounted price of $367 per unit

normal production costs:

• direct materials $143
• direct labor $90
• manufacturing overhead $31
• total $264

costs related to the special order

increase in direct materials = $7 per unit, total of $150 per unit

direct labor $90 per unit

variable overhead = $8 per unit

machine used for this project only $457

revenue generated by special order:

total revenue $9,542

- variable costs ($6,448)

• direct materials $3,900
• direct labor $2,340
• variable overhead $208

- special machine ($457)

profit from special order $2,637