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?
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
Related questions
Question
both parts of the question
Transcribed Image Text:3
Imperial Jewelers manufactures and sells a gold bracelet for $403.00. The company's accounting system says that the unit product
cost for this bracelet is $258.00 as shown below:
Direct materials
Direct labor
Manufacturing overhead
Unit product cost
$ 141
86
31
$ 258
The members of a wedding party have approached Imperial Jewelers about buying 29 of these gold bracelets for the discounted price
of $363.00 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 $14. Imperial Jewelers would also have to buy a special tool for $463 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, $15.00 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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