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E13-5: Evaluating a special order: Miyamoto Jewelers gold bracelet.

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Miyamoto Jewelers is considering a special order for 10 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $389.95 and its unit product cost is $264.00 as shown below:

Materials $143
Direct Labor 86
Manufacturing overhead 35
Unit product cost 264

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $7 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 $6 per bracelets and would also require acquisition of a special tool costing $465 that would have no other use once 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.

What effect would accepting this order have on the company's pretax income is a special price of $349.95 is offered per bracelet for this order? Should the special order be accepted at this price?

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The calculations to explain the total cost of the products are shown together with a conclusion.

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