Gruden Company produces golf discs which it normally sells to retailers for $7 e

Question

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 22,200 golf discs is:

Gruden also incurs 5% sales commission ($0.35) on each disc sold.

McGee Corporation offers Gruden $4.89 per disc for 4,680 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 $45,066 to $50,726 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).)

(b)

Should Gruden accept the special order?

Materials $  11,100 Labor 33,966 Variable overhead 24,198 Fixed overhead 45,066 Total $114,330

Explanation / Answer

(a)

(b) Gruden should accept the special order as there exists a profit of $2623.60.

Reject order Accept order Net Income +increase or (decrease) Revenue $32760 $22885.20 ($9874.8) materials 2340 2340.00 0 Labor 7160.40 7160.40 0 Variable overhead 5101.20 5101.20 0 Fixed overhead 50726 5660.00 45066 sales commission 1638 0 1638 Net Income (34205.60) $2623.60 $36829.20

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