Question

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 24,200 golf discs is:

Materials		$  12,342
Labor		36,542
Variable overhead		25,894
Fixed overhead		47,916
Total		$122,694

Gruden also incurs 5% sales commission ($0.35) on each disc sold.

McGee Corporation offers Gruden $4.80 per disc for 4,800 discs. McGee would sell the discs under its own brand name in foreign markets not yet served by Gruden. If Gruden accepts the offer, its fixed overhead will increase from $47,916 to $53,006 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

(a)

Prepare an incremental analysis for the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Reject Order		Accept Order		Net Income Increase (Decrease)
Revenues		$enter revenues in dollars		$enter revenues in dollars		$enter revenues in dollars
Materials		enter materials in dollars		enter materials in dollars		enter materials in dollars
Labor		enter labor in dollars		enter labor in dollars		enter labor in dollars
Variable overhead		enter variable overhead in dollars		enter variable overhead in dollars		enter variable overhead in dollars
Fixed overhead		enter fixed overhead in dollars		enter fixed overhead in dollars		enter fixed overhead in dollars
Sales commissions		enter sales commissions in dollars		enter sales commissions in dollars		enter sales commissions in dollars
Net income		$enter net income in dollars		$enter net income in dollars		$enter net income in dollars

(b)

Should Gruden accept the special order?

Gruden should select between accept and reject                                                          rejectaccept the special order .

Answer 1

(a)

Prepare an incremental analysis for the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		Reject Order		Accept Order		Net Income Increase (Decrease)
Revenues		0		4800*4.8 = 23040		23040
Materials		0		4800*.51 = -2448		-2448
Labor		0		4800*1.51 = -7248		-7248
Variable overhead		0		4800*1.07 = -5136		-5136
Fixed overhead		0		-5090		-5090
Sales commissions		0		0		0
Net income		0		3118		3118

(b)

Should Gruden accept the special order?

Gruden should accept the special order .