Exercise 10-4 Evaluating a Special Order [LO10-4]
Imperial Jewelers is considering a special order for 20
handcrafted gold bracelets to be given as gifts to members of a
wedding party. The normal selling price of a gold bracelet is
$189.95 and its unit product cost is $149.00 as shown below:
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Direct
materials |
$ |
84.00 |
Direct labor |
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45.00 |
Manufacturing
overhead |
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20.00 |
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Unit product
cost |
$ |
149.00 |
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Most of the manufacturing overhead is fixed and unaffected by
variations in how much jewelry is produced in any given period.
However, $4.00 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 $2.00 per bracelet and would also
require acquisition of a special tool costing $250 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.
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1. |
What effect would accepting this order have on the company’s net
operating income if a special price of $169.95 per bracelet is
offered for this order? (Enter all amounts as positive
values. Round your answers to 2 decimal places.)
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2. |
Should the
special order be accepted at this price? |
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