Reference no: EM132979105

Question - Imperial Jewellers is considering a special order for 20 handcrafted gold bracelets for a major upscale wedding. The gold bracelets are to be given as gifts to members of the wedding party. The normal selling price of a gold bracelet is $199.95 and its unit product cost is $169, as shown:

Materials $84.00

Direct labour 45.00

Manufacturing overhead 40.00

Unit product cost $169.00

The manufacturing overhead is largely fixed and unaffected by variations in how much jewellery is produced in any given period. However, 20% of the overhead is variable with respect to the number of bracelets produced. The customer interested in the special bracelet order would like special filigree applied to the bracelets. This would require additional materials costing $2 per bracelet and would also require acquisition of a special tool costing $250 that would have no other use once the special order was 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.

What effect would accepting this order have on the company's net operating income if a special price of $169.95 is offered per bracelet for this order? Should the special order be accepted at this price?