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Imperial Jewellers is considering a special order for 30 handcrafted gold bracelets for a wedding. The gold bracelets are to be given as gifts to
Imperial Jewellers is considering a special order for 30 handcrafted gold bracelets for a 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 $195.00 and its unit product cost is $181.50, as shown: Materials Direct labour Manufacturing overhead Unit product cost $ 89.50 49.00 43.00 $ 181.50 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 $10.00 per bracelet and would also require acquisition of a special tool costing $440 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 $192.00 is offered per bracelet for this order? Net operating income by Should the special order be accepted at this price? Yes No Barlow Company manufactures three products: A, B and C. The selling price, variable costs and contribution margin for one unit of each product follow: Selling price Less: Variable expenses: Direct materials Direct labour Other variable expenses Total variable expenses Contribution margin A $149.00 Product B $210.00 $205.00 C 27.00 104.00 78.00 16.00 16.00 16.00 74.30 117.30 38.00 70.75 158.00 164.75 $ 31.70 $ 52.00 $ 40.25 The same raw material is used in all three products and costs $4 per kilogram. Barlow Company has only 11,500 kilograms of material on hand and will not be able to obtain any more material for several weeks due to a strike in its supplier's plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. Direct labour costs $25 per hour. Required: 1. Compute the amount of contribution margin that will be obtained per kilogram of material used in each product. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Contribution margin per kilogram A B 2. Which orders would you recommend that the company work on next week-the orders for product A, product B or product C? Product A Product B Product C 3. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional kilogram of materials? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Highest price per kilogram 4. Assume that direct labour becomes a constraint instead of direct materials. How will your answer to Requirement (2) above change? Product A O Product B Product C
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