Miyamoto Jewelers is considering a special order for 24 handcrafted gold bracele

Question

Miyamoto Jewelers is considering a special order for 24 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $409 and its unit product cost is $267 as shown below:

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $8 of the overhead is variable with respect to the number of bracelets produced. The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This filigree would require additional materials costing $7 per bracelet and would also require acquisition of a special tool costing $455 that would have no other use once the special order is completed. This order would have no effect on the company

   Direct materials $ 141         Direct labor 89         Manufacturing overhead 37         Unit product cost $ 267      Miyamoto Jewelers is considering a special order for 24 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $409 and its unit product cost is $267 as shown below: Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $8 of the overhead is variable with respect to the number of bracelets produced. The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This filigree would require additional materials costing $7 per bracelet and would also require acquisition of a special tool costing $455 that would have no other use once the special order is completed. This order would have no effect on the company's regular sales and the order could be fulfilled using the company's existing capacity without affecting any other order. What effect would accepting this order have on the company's net operating income if a special price of $369 is offered per bracelet for this order? (Input the amount as a positive value.) Should the special order be accepted at this price?

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Incremental Income from Special Order:

Answer is Net Operating Income Increases by 2521.

Part B:

Yes, the special order should be accepted at this price.

Thanks.

Sales (24*369) 8856 Less Variable Costs
Direct Materials (24*141) 3384 Direct Labor (24*89) 2136 Manufacturing Overhead (24*8) 192 Additional Material Cost (24*7) 168 Contribution 2976 Less Fixed Cost (Special tool) 455 Net Operating Income 2521

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