What is the financial advantage of accepting special order

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Question - Imperial Jewelers manufactures and sells a gold bracelet for $406.00. The company's accounting system says that the unit product cost for this bracelet is $261.00 as shown below:

Direct materials $146

Direct labor 84

Manufacturing overhead 31

Unit product cost $251

The members of a wedding party have approached Imperial Jewelers about buying 25 of these gold bracelets for the discounted price of $366.00 each. The members of the wedding party would like special ?ligree 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 $458 to apply the ?ligree 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 ?xed and unaffected by variations in how muchjewelry 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 ful?ll 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?

Reference no: EM133175206

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