Imperial Jewelers' Special Order Analysis
What is the financial advantage (disadvantage) of accepting the special order from the wedding party? Should the company accept the special order?
Given the data on Imperial Jewelers' special order, what are the financial implications of accepting the order and should the company proceed with it?
Financial Analysis of the Special Order:
To analyze the financial advantage or disadvantage of accepting the special order from the wedding party, we need to consider the incremental revenue and costs associated with the order.
The incremental revenue for the special order can be calculated by multiplying the number of bracelets in the order (26) by the discounted price per bracelet ($365), resulting in a total incremental revenue of $9,490.
On the cost side, the special order requires the purchase of a special tool for $454 and an increase in direct materials cost per bracelet by $11. Direct labor and manufacturing overhead costs remain unaffected by the order.
By calculating the total incremental cost for the special order, which is $465 per bracelet, the company would incur a total cost of $12,090 for fulfilling the order.
Subtracting the total incremental cost from the incremental revenue gives us a financial disadvantage of $2,600 for accepting the special order.
Decision on Special Order:
Based on the financial analysis, Imperial Jewelers would experience a financial disadvantage of $2,600 if they accept the special order from the wedding party. The decision to proceed with the order should consider the potential impact on the company's overall profitability and capacity to fulfill other customer orders.