Exercise 20-2 Gruden Company produces golf discs which it normally sells to reta

Question

Exercise 20-2 Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 19,500 golf discs is: Materials Labor Variable overhead 19,305 Fixed overhead Total $8,775 30,225 38,415 S96,720 Gruden also incurs 8% sales commission ($0.55) on each disc sold McGee Corporation offers Gruden $4.77 per disc for 4,920 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 $38,415 to $44,725 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. Round answers to 0 decimal places, e.g. 1250. Enter negative amounts using either a negative sign preceding the number e.g.-45? parentheses e.g. (45).) Reject Order Accept Order Net Income Increase (Decrease) Materials Labor Variable overhead Fixed overhead Sales commissions Net income Should Gruden accept the special order? Gruden should the special order Click if you would like to Show Work for this question

Explanation / Answer

Incremental analysis :

Gruden should accept the special order.

Reject order Accept order Net income increase (decrease) Revenue 0 4920*4.77 = 23468.40 23468.40 Material 0 -2214 -2214 Labour 0 -7626 -7626 Variable overhead 0 -4870.80 -4870.80 Fixed overhead 0 -6310 -6310 Sales commissions 0 0 0 Net income 0 2448 2448

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