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 23,900 golf discs is:

Gruden also incurs 7% sales commission ($0.48) on each disc sold.

McGee Corporation offers Gruden $4.91 per disc for 5,130 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 $46,605 to $51,305 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 $  10,994 Labor 37,045 Variable overhead 25,812 Fixed overhead 46,605 Total $120,456

Explanation / Answer

(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) Yes, Gruden should accept the special order

Reject order Accept order Net income increase (decrease) Revenue 0 25188.30 25188.30 Materials 0 -2359.80 -2359.80 Labour 0 -7951.50 -7951.50 Variable overhead 0 -5540.40 -5540.40 Fixed overhead 0 -4700 -4700 Sales commissions 0 -2462.40 -2462.40 Net income 0 2174 2174

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