Gruner Company produces golf discs which it normally sells to retailers for $6.9

Q: Gruner Company produces golf discs which it normally sells to retailers for $6.9

Reject Accept Net Income Effect Revenue 0 28733 28733 Materials 0 2950 -2950 Labor 0 8260 -8260 Variable Overhead 0 6431 -6431 Fixed Overhead 0 4533 -4533 Sales Commission 0 0 0 Net Income 0 6559 6559 Reject Accept Net Income Effect Revenue 0 28733 28733 Materials 0 2950 -2950 Labor 0 8260 -8260 Variable Overhead 0 6431 -6431 Fixed Overhead 0 4533 -4533 Sales Commission 0 0 0 Net Income 0 6559 6559

ID: 2348439 • Letter: G

Question

Gruner Company produces golf discs which it normally sells to retailers for $6.94 each. The cost of manufacturing 18,800 golf discs is:

Materials $9400 Labor $26320 Variable overhead $20,492 Fixed overhead $37,976
Total $94,188.

Gruner also incurs 6% sales commission ($0.42) on each disc sold.
Travis Corporation offers Gruner $4.87 per disc for 5900 discs. Travis would sell the discs under its own brand name in foreign markets not yet served by Gruner. If Gruner accepts the offer, its fixed overhead will increase from $37976 to $42509 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

Prepare an incremental analysis for the special order.
Should Gruner accept the special order?

Explanation / Answer

Reject

Net Income Effect

Revenue

28733

Materials

2950

-2950

Labor

8260

-8260

Variable Overhead

6431

-6431

Fixed Overhead

4533

-4533

Sales Commission

Net Income

6559