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work i 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 $270.00 as shown below: Direct materials Direct labor Manufacturing overhead Unit product cost $146 85 39 $ 270 Saved The members of a wedding party have approached Imperial Jewelers about buying 19 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 increase the direct materials cost per bracelet by $11. Imperial Jewelers would also have to buy a special tool for $451 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, $12.00 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?
work i 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 $270.00 as shown below: Direct materials Direct labor Manufacturing overhead Unit product cost $146 85 39 $ 270 Saved The members of a wedding party have approached Imperial Jewelers about buying 19 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 increase the direct materials cost per bracelet by $11. Imperial Jewelers would also have to buy a special tool for $451 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, $12.00 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?
Final answer:Imperial Jewelers has a financial advantage of $822 from accepting a special order to sell 19 gold bracelets at a discounted price. The total costs are $6,018 including the extra materials and tool, and the revenue from the order is $6,840. As such, accepting the order is favorable as it brings additional profit without affecting regular business.Explanation:The financial advantage or disadvantage of accepting the special order from the wedding party for Imperial Jewelers can be determined by analyzing relevant costs and revenues associated with the order. The normal unit product cost of the bracelet is $270, with direct materials at $146, direct labor at $85, and manufacturing overhead at $39. Since the order has a proposed discount price of $360 per bracelet, which is less than the regular selling price of $400, we need to assess if this discounted price covers the additional costs and still provides a profit.For the special order, direct materials costs increase by $11 per unit, and there's an additional one-time cost of $451 for the special tool required to apply the filigree. Variable overhead increases by $12 per bracelet making revised total variable costs of $293 ($270 original unit cost + $11 additional direct materials + $12 additional variable overhead) per unit. Since the order is for 19 bracelets, the total variable costs would be $5,567 ($293 x 19). Including the one-time cost for the special tool, we get an overall total cost of $6,018 ($5,567 + $451).The total revenue from this special order would be $6,840 ($360 x 19). To find the financial advantage, subtract the total costs from the total revenue: $6,840 - $6,018 = $822. Therefore, Imperial Jewelers would experience a financial advantage of $822 from accepting the special order. Since there is a positive financial advantage and accepting the order would not affect the company's ability to sell to other customers, Imperial Jewelers should accept the special order....