Purchase Solution

# special order problem

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The Walter Jewelry Company produces a bracelet which normally sells for \$79.95. The company produces 1,500 units annually but has the capacity to produce 2,000 units. A special order for manufacturing and selling 200 bracelets at \$49.95 has been received which would not disrupt current operations. Current costs for the bracelet are as follows:
Direct materials \$17.00
Direct labor 14.50
Total \$40.50

In addition, the customer would like to add a monogram to each bracelet which would require an additional \$2 per unit in additional labor costs and Walter Company would also have to purchase a piece of equipment to create the monogram which would cost \$1,600. This equipment would not have any other uses.

With regard to this special order only:
A. incremental revenues will exceed incremental costs by \$2,490.
B. incremental revenues will exceed incremental costs by \$890.
C. incremental revenues will exceed incremental costs by \$2,890
D. incremental revenues will exceed incremental costs by \$1,290

##### Solution Summary

Identifies the relevant items and shows computations.

##### Solution Preview

B.

Per unit:
Incremental Revenue: Sales \$49.95
Incremental ...

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###### Education
• BSc, University of Virginia
• MSc, University of Virginia
• PhD, Georgia State University
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