Imperial Jewelers is considering a special order for 20 handcrafted gold bracelets to be given as gifts tomembers of a wedding party. The normal selling price of a gold bracelet is $189.95 and its unit productcost is $149.00 as shown below:Direct materials .................................... $ 84.00Direct labor ........................................... 45.00Manufacturing overhead ...................... 20.00Unit product cost .................................. $149.00Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry isproduced in any given period. However, $4.00 of the overhead is variable with respect to the numberof bracelets produced. The customer who is interested in the special bracelet order would like specialfiligree applied to the bracelets. This filigree would require additional materials costing $2.00 perbracelet and would also require acquisition of a special tool costing $250 that would have no otheruse once the special order is completed. This order would have no effect on the company’s regularsales and the order could be fulfilled using the company’s existing capacity without affecting anyother order.Required:What effect would accepting this order have on the company’s net operating income if a special price of$169.95 per bracelet is offered for this order? Should the special order be accepted at this price?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Imperial Jewelers is considering a special order for 20 handcrafted gold bracelets to be given as gifts to
members of a wedding party. The normal selling price of a gold bracelet is $189.95 and its unit product
cost is $149.00 as shown below:
Direct materials .................................... $ 84.00
Direct labor ........................................... 45.00
Manufacturing overhead ...................... 20.00
Unit product cost .................................. $149.00
Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is
produced in any given period. However, $4.00 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 $2.00 per
bracelet and would also require acquisition of a special tool costing $250 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.
Required:
What effect would accepting this order have on the company’s net operating income if a special price of
$169.95 per bracelet is offered for this order? Should the special order be accepted at this price?
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