Miyamoto
Jewelers and Union Bay
QUESTION 1
Evaluating a
special order (LO – 7-5)
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 as shown below.
Direct
Materials ……………………………………..$143.00
Direct
Labor……………………………………………. 86.00
Manufacturing
Overhead……………………….. 35.00
Unit Product
Cost……………………………………$264.00
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 material
costing $6 per bracelet and would also require acquisition of a special tool
costing $465 that would have no other use once the 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.
Required:
What effect
would accepting this order have on the company’s net operating income if a
special price of $349.95 is offered per bracelet for this order? Should
the special order be accepted at this price?
QUESTION 2
Uncertain
Future Cash Flows (LO – 8-3)
Union Bay
Plastics is investigating the purchase of automated equipment that would save
$100,000 each year in direct labor and inventory carrying costs. This
equipment costs $750,000 and is expected to have a 10-year useful lift with no
salvage value. The company’s required rate of return is 15% on all equipment
purchases. This equipment would provide intangible benefits such as
greater flexibility and higher-quality output that are difficult to estimate
and yet are quite significant.
Required:
(Ignore
income taxes)
What dollar
value per year would the intangible benefits have to have in order to make the
equipment an acceptable investment?
TUTORIAL PREVIEW
|
|
Per
Unit
|
Total
10
bracelets
|
|
|
||
|
Incremental revenue
|
$349.95
|
$3,499.50
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