Imperial Jewelers manufactures and sells a gold bracelet for $405.00. The company's accounting system says that the unit product cost for this bracelet is $267.00 as shown below: Direct materials $ 143 Direct labor 85 39 Unit product cost $ 267 Manufacturing overhead The members of a wedding party have approached Imperial Jewelers about buying 20 of these gold bracelets for the discounted price of $365.00 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 $10. Imperial Jewelers would also have to buy a special tool for $466 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, $11.00 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?
Imperial Jewelers manufactures and sells a gold bracelet for $405.00. The company's accounting system says that the unit product cost for this bracelet is $267.00 as shown below: Direct materials $ 143 Direct labor 85 39 Unit product cost $ 267 Manufacturing overhead The members of a wedding party have approached Imperial Jewelers about buying 20 of these gold bracelets for the discounted price of $365.00 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 $10. Imperial Jewelers would also have to buy a special tool for $466 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, $11.00 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Imperial Jewelers manufactures and sells a gold bracelet for $405.00. The company's accounting
system says that the unit product cost for this bracelet is $267.00 as shown below:
Direct materials
$ 143
Direct labor
85
Manufacturing overhead
39
Unit product cost $ 267
The members of a wedding party have approached Imperial Jewelers about buying 20 of these
gold bracelets for the discounted price of $365.00 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 $10. Imperial Jewelers would also have to buy a special tool for $466 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, $11.00 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?
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