Question

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 22,200 golf discs is:

Materials		$  11,100
Labor		33,966
Variable overhead		24,198
Fixed overhead		45,066
Total		$114,330

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

McGee Corporation offers Gruden $4.90 per disc for 4,700 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 $45,066 to $50,726 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                                                          acceptreject 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		23030		23030
Materials		0		-2350		-2350
Labor		0		-7191		-7191
Variable overhead		0		-5123		-5123
Fixed overhead		0		-5660		-5660
Sales commissions		0		0		0
Net income		0		2706		2706

(b)

Should Gruden accept the special order?

Gruden should select accept the special order .