Special Order Decision: A Profitable Opportunity

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Imperial Jewelers has an opportunity to fulfill a special order for gold bracelets. What factors should the company consider before accepting this special order?

Factors to Consider Before Accepting Special Order:

Imperial Jewelers manufactures and sells a gold bracelet for $189.95, with a unit product cost of $149.00. The special order involves additional expenses of $252 for filigree materials and a specific tool.

When presented with a special order opportunity, businesses must carefully evaluate the financial implications before making a decision. In the case of Imperial Jewelers, the company needs to consider the incremental costs and revenues associated with the special order.

The incremental expenses of the special order include $2 per bracelet for filigree materials and $250 for the specific tool. On the other hand, the incremental revenue per bracelet from the special order is $169.95.

To calculate the incremental profit from the special order, the company can subtract the incremental costs from the incremental revenue. Assuming ten bracelets were ordered, the incremental profit would be $1079.50.

By analyzing the incremental expenses and revenues, Imperial Jewelers can determine whether accepting the special order would result in a net operating income increase. In this case, the company stands to benefit from the special order as the incremental revenue outweighs the incremental costs.

Ultimately, if Imperial Jewelers can fulfill the special order without negatively impacting its regular sales, it should seize this profitable opportunity to increase its net operating income.