A company manufactures and sells a gold bracelet for $406.00. The company’s accounting system says the unit product cost for this bracelet is $261.00, as shown below: Direct materials $ 147 Direct labor 83 Manufacturing overhead 31 Unit product cost $ 261 A wedding party has approached Imperial Jewelers about buying 18 gold bracelets for the discounted price of $366.00 each. The wedding party would like special filigree applied to the bracelets that would increase the direct materials cost per bracelet by $13. Imperial Jewelers would have to buy a special tool for $460 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, Imperial Jewelers determined most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $14.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes 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 existing manufacturing capacity. Required: What is the financial advantage (disadvantage) of accepting the wedding party’s special order? Should the company accept the special order?
A company manufactures and sells a gold bracelet for $406.00. The company’s accounting system says the unit product cost for this bracelet is $261.00, as shown below:
| Direct materials | $ 147 |
|---|---|
| Direct labor | 83 |
| Manufacturing |
31 |
| Unit product cost | $ 261 |
A wedding party has approached Imperial Jewelers about buying 18 gold bracelets for the discounted price of $366.00 each. The wedding party would like special filigree applied to the bracelets that would increase the direct materials cost per bracelet by $13. Imperial Jewelers would have to buy a special tool for $460 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, Imperial Jewelers determined most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $14.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes 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 existing manufacturing capacity.
Required:
- What is the financial advantage (disadvantage) of accepting the wedding party’s special order?
- Should the company accept the special order?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
