Gruden Company produces golf discs which it normally sells to retailers for $7.2

Question

Gruden Company produces golf discs which it normally sells to retailers for $7.24 each. The cost of manufacturing 17,200 golf discs is:

Materials $8,600

Labor 26,144

Variable overhead 16,340

Fixed overhead 34,916

Total $86,000

Gruden also incurs 5% sales commission ($0.36) on each disc sold. McGee Corporation offers Gruden $5 per disc for 5,500 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 $34,916 to $41,258 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.

Explanation / Answer

Increamental Analysis for the special Order Units 17200 5500 Increament Sales 7.24 5 2.24 0 Material 8600 8600 Labour 26144 26144 Variable overheads 16340 16340 Fixed Overheads 34916 41258 -6342 0 Total 86000 86000 0 Commission .36*17200 6192 6192

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