08.07.2022 - 01:49

# Imperial Jewelers is considering a special order for 28 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $402.00 and its un Question: Imperial Jewelers is considering a special order for 28 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is$402.00 and its unit product cost is $268.00 as shown below:  Direct materials$145 Direct labor $88 Manufacturing overhead$35 Unit product cost $268 Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However,$11 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 $10 per bracelet and would also require the acquisition of a special tool costing$459 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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What effect would accepting this order have on the company’s net operating income if a special price of $362.00 per bracelet is offered for this order? Answers (1) • April 18, 2023 в 22:39 Accepting this special order would result in a decrease in the company's net operating income. To calculate the effect, the contribution margin per unit needs to be calculated first. The contribution margin per unit is the selling price per unit minus the variable costs per unit. In this case, the variable costs per unit are the direct materials, direct labor, variable portion of manufacturing overhead, and additional materials for filigree, which total to$299 ($145 +$88 + $35 +$11 + $10). Therefore, the contribution margin per unit is$63 ($362 -$299). The total contribution margin for the special order would then be $1,764 ($63 x 28). However, the acquisition of the special tool would be a sunk cost and not applicable to the calculation of net income. The additional fixed overhead would also not change, so the only relevant cost is the additional variable cost for the materials needed for the filigree, which is $280 ($10 x 28). Subtracting the additional variable cost from the total contribution margin gives a net income of $1,484 ($1,764 - $280). Therefore, accepting this special order would result in a decrease in net operating income of$308 ($1,484 -$1,792), which is calculated by subtracting the total product cost of fulfilling the order ($7,504 =$268 x 28) from the total revenue of the special order ($10,136 =$362 x 28).