Miyamoto Jewelers is considering a special order for 10 handcrafted gold bracele
ID: 2504936 • Letter: M
Question
Miyamoto Jewelers is considering a special order for 10 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $389.95 and its unit product cost is $264.00 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, $7 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 $6 per bracelet and would also require acquisition of a special tool costing $465 that would have no other use once the special order is completed. This order would have no effect on the company
Miyamoto Jewelers is considering a special order for 10 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $389.95 and its unit product cost is $264.00 as shown below:
Explanation / Answer
Relevant unit direct cost for this order = 143 (for direct material) + 86 (for direct labor) + 7 (for mftg overhead) + 6 (for special filigree) = 242
Point to note here is that only $7 of the manufacturing overhead should be considered.
In addition, there is a fixed cost of $465
So increase in net operating income = no of units * (sale price - unit direct cost) - fixed cost
= 10 * (349.95 - 242) - 465 = $ 614.5
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