A. Imperial Jewelers manufactures and sells a gold bracelet for $400.00. The companys accounting system says that the unit product cost for this bracelet is $260.00 as shown below:

Direct materials	$	144
Direct labor		81
Manufacturing overhead		35
Unit product cost	$	260

The members of a wedding party have approached Imperial Jewelers about buying 24 of these gold bracelets for the discounted price of $360.00 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 $465 and that would increase the direct materials cost per bracelet by $11. 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, $12.00 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 partys 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?

B.

Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the company's products far exceeds its manufacturing capacity. The bottleneck (or constraint) in the production process is upholstery labor-hours. Information concerning three of Portsmouth's upholstered chairs appears below:

	Recliner			Sofa			Love Seat
Selling price per unit	$	1,344		$	1,830		$	1,375
Variable cost per unit	$	750		$	1,200		$	950
Upholstery labor-hours per unit	9 hours			14 hours			5 hours

Required:

1. Portsmouth is considering paying its upholstery laborers hourly compensation, in addition to their usual salaries, to work overtime. Assuming that this extra time would be used to produce sofas, up to how much of an overtime premium per hour should the company be willing to pay to keep the upholstery shop open after normal working hours?

2. A small nearby upholstering company has offered to upholster furniture for Portsmouth at a price of $43 per hour. The management of Portsmouth is confident that this upholstering companys work is high quality and their craftsmen can work as quickly as Portsmouths own craftsmen on the simpler upholstering jobs such as the Love Seat. How much additional contribution margin per hour can Portsmouth earn if it hires the nearby upholstering company to make Love Seats?

3. Should Portsmouth hire the nearby upholstering company?