Should the special order be accepted at the given price

Reference no: EM131231272

Miyamoto Jewelers is considering a special order for 10 handcrafted gold bracelets to be give as gifts to members of a wedding party. The normal selling price of gold bracelet is Rs. 389.95 and its unit product cost is Rs. 264.00 as shown below:

Materials................................. Rs. 143.00
Direct labor............................... 86.00
Manufacturing overhead................ 35.00
Unit product cost........................ Rs 264.00

Most of the manufacturing overhead is fixed and unaffected by variations. In how much jewelry is produced in any given period. However, Rs. 7 of the overhead is variable with respect to number of bracelets produced. The customer who is interest in the special bracelets order would like special filigree applied to bracelets. This filigree would require additional materials costing Rs. 6 per bracelet and would also require acquisition of a special tool costing Rs. 465 that would have no other use once that specific order is completed. This order would have no effect on the company's regular sales and the order would be fulfilled using the company's existing capacity without affecting any other order.

Required:

What effect would accepting this order have on the company's net operating income if a special price of Rs. 349.95 is offered per bracelet for this order? Should the special order be accepted at this price?

Reference no: EM131231272

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