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 $4.89 per disc for 4,680 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. (Round computations for per unit cost to 4 decimal places, e.g. 15.2500 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

a
	Reject Order	Accept Order	Net Income Increase (Decrease)
Revenues	0	22885	22885
Materials	0	-2340	-2340
Labor	0	-7160	-7160
Variable overhead	0	-5101	-5101
Fixed overhead	0	-5660	-5660
Sales commissions	0	0	0
Net income	0	2624	2624
Gruden should accept the special order .

Workings:
	Per unit	4680 units
Revenues	4.89	22885
Materials	0.50	2340
Labor	1.53	7160
Variable overhead	1.09	5101
Fixed overhead	5660	=50726-45066