Question

Gruden Company produces golf discs which it normally sells to retailers for $ 7 each. The cost of manufacturing 16,700 golf discs is:

Materials		$   8,350
Labor		24,883
Variable overhead		17,702
Fixed overhead		32,899
Total		$ 83,834

Gruden also incurs 6% sales commission ($ 0.41) on each disc sold.

McGee Corporation offers Gruden $ 4.82 per disc for 5,110 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 $ 32,899 to $ 38,779 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 answers to 0 decimal places, e.g. 1250. 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 a dollar amount rounded to 0 decimal places		$ enter a dollar amount rounded to 0 decimal places		$ enter a dollar amount rounded to 0 decimal places
Materials		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places
Labor		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places
Variable overhead		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places
Fixed overhead		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places
Sales commissions		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places
Net income		$ enter a dollar amount rounded to 0 decimal places		$ enter a dollar amount rounded to 0 decimal places		$ enter a dollar amount rounded to 0 decimal places

(b)

Should Gruden accept the special order?

Gruden should select: accept/reject the special order .

Answer 1

Gruden Company

1. Incremental analysis for the special order:

Gruden Company
Incremental Analysis for the Special Order:
	Reject Order	Accept Order	Net Income Increase (Decrease)
Revenues	0	$24,630	$24,630
Materials	0	$2,555	($2,555)
Labor	0	$7,614	($7,614)
Variable Overhead	0	$5,417	($5,417)
Fixed Overhead	0	$5,880	($5,880)
Sales Commission	0	$0	$0
Net Income	0	$3,164	$3,164

Material = ($8,350/16,700) x 5,110 = $2,555

Labor = (24,883/16,700) x 5,110 = $7,614

Variable overhead = (17,702/16,700) x 5,110 = $5,417

Fixed overhead = $38,779 - $32,899 = $5,880

No sales commission.

1. Should the company accept the special order:

Yes, Gruden should accept the special order.

Explanation: The net income of the company increases by $3,164 on acceptance of the special order.