Imperial Jewelers manufactures and sells a gold bracelet for $406.00. The company's accounting system says the unit product cost for this bracelet is $267.00, as shown below: Direct materials Direct labor Manufacturing overhead Unit product cost $ 144 87 36 $ 267 A wedding party has approached Imperial Jewelers about buying 12 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 $4. Imperial Jewelers would have to buy a special tool for $467 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, $5.00 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: 1. What is the financial advantage (disadvantage) of accepting the wedding party's special order? 2. Should the company accept the special order?
Imperial Jewelers manufactures and sells a gold bracelet for $406.00. The company's accounting system says the unit product cost for this bracelet is $267.00, as shown below: Direct materials Direct labor Manufacturing overhead Unit product cost $ 144 87 36 $ 267 A wedding party has approached Imperial Jewelers about buying 12 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 $4. Imperial Jewelers would have to buy a special tool for $467 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, $5.00 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: 1. What is the financial advantage (disadvantage) of accepting the wedding party's special order? 2. Should the company accept the special order?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Imperial Jewelers manufactures and sells a gold bracelet for $406.00. The company's accounting system says the unit product cost for
this bracelet is $267.00, as shown below:
Direct materials
Direct labor
$ 144
87
Manufacturing overhead
Unit product cost
36
$ 267
A wedding party has approached Imperial Jewelers about buying 12 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 $4.
Imperial Jewelers would have to buy a special tool for $467 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, $5.00 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:
1. What is the financial advantage (disadvantage) of accepting the wedding party's special order?
2. Should the company accept the special order?
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