Check my work Imperial Jewelers manufactures and sells a gold bracelet for $400.

Question

Check my work Imperial Jewelers manufactures and sells a gold bracelet for $400.00. The company's accounting system says that the unit product cost for this bracelet is $265.00 as shown below Direct materials Direct 1abor Manufacturing overhead Unit product cost $144 83 38 $265 The members of a wedding party have app?oached Imperial Jewelers about buying 18 of these gold bracelets for the discounted price of $360.00 each. The members of the wedding party would like special filigree applied to the bracelets that would require Imperial Jewelers to buy a special tool for $453 and that would increase the direct materials cost per bracelet by $9. 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, $10.00 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 capecity

Explanation / Answer

Incremental analysis :

Financial advantage of accepting the special order is $1599

Company should accept the special order.

Incremental revenue (18*360) 6480 Incremental cost Direct material (18*144) (2592) Direct labour (18*83) (1494) Variable overhead (18*10) (180) Additional material (18*9) (162) Special tool (453) Total incremental cost (4881) Incremental profit (loss) 1599

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