The members of a wedding party have approached Imperial Jewelers about buying 25 of these gold bracelets for the discounted price of $369.00 each. The members of the wedding party would like special filigree applied to the bracelets that would require Imperial Jewelers to buy a special tool for $469 and that would increase the direct materials cost per bracelet by $6. 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 fixed and unaffected by variations in how much jewelry is produced in any given period. However, $7.00 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 fulfill 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?

Imperial Jewelers can work on this wedding party without incurring any additional cost in the nature of fixed expenses regularly incurred as the project is within the capacity.

And provided no regular sales will be affected therefore, the cost to be considered for making decision of this investment is Variable cost per unit, and any additional fixed cost if provided.

Here variable cost per unit = $7, Add: additional material cost of $6 per unit. = $13 per unit

Additional fixed expense = $469 for the tool.

Therefore total cost for decision of manufacturing 25 gold bracelets =

($13 [tex]\times[/tex] 25) + $469 = $325 +$469 = $794

Total revenue from these 25 bracelets = $369[tex]\times[/tex]25 = $9,225

Therefore from this wedding project,

1. Financial Advantage = $9,225 - $794 = $8,431

2. Since It is an advantage the wedding project shall be accepted.