Q1) Miyamoto Jewelers is thinking a special order for 10 handcrafted gold bracelets to be given as gifts to members of wedding party. Normal selling price of gold bracelet is $389.95 and its unit product cost is $264.00 as given below:
| Direct materials............... |
$143.00 |
| Direct labor.................... |
86.00 |
| Manufacturing overhead... |
35.00 |
| Unit product cost............ |
$264.00 |
Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is product in any given period. Though, $7 of overhead is variable with respect to number if bracelets produced. Customer who is interested in special bracelet order would like special filigree applied to bracelets. This filigree would need extra materials costing $6 per bracelet and would also need acquisition of special tool costing $465 which would have no other use once special order is completed. This order would have no effect on company's regular sales and other could be fulfilled using company's existing capacity without affecting any other order.
problems:
What effect would accepting this order have on company's net operating income if special price of $349.95 is offered per bracelet for this order? Should special order be accepted at this price?