Question

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 23,600 golf discs is:

Materials		$  12,744
Labor		36,344
Variable overhead		24,308
Fixed overhead		48,144
Total		$121,540

Gruden also incurs 7% sales commission ($0.49) on each disc sold.

McGee Corporation offers Gruden $4.90 per disc for 5,100 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 $48,144 to $52,714 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		$		$		$
Materials
Labor
Variable overhead
Fixed overhead
Sales commissions
Net income		$		$		$

Answer 1