Question

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 15,100 golf discs is:

Materials		$  7,852
Labor		21,744
Variable overhead		14,496
Fixed overhead		30,502
Total		$74,594

Gruden also incurs 6% sales commission ($0.42) on each disc sold.

McGee Corporation offers Gruden $5.00 per disc for 4,600 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 $30,502 to $35,342 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
	Reject Order	Accept Order	Net Income Increase (Decrease)
Revenues	0	23000	23000
Materials	0	-2392	-2392
Labor	0	-6624	-6624
Variable overhead	0	-4416	-4416
Fixed overhead	0	-4840	-4840
Sales commissions	0	0	0
Net income	0	4728	4728
b
Gruden should accept the special order .
Workings:
	Per unit	4600 units
Revenues	5.00	23000
Materials	0.52	2392
Labor	1.44	6624
Variable overhead	0.96	4416
Fixed overhead	4840	=35342-30502