Gruden Company produces golf discs which it normally sells to retailers for $7 e
ID: 2476208 • Letter: G
Question
Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 17,000 golf discs is:
Gruden also incurs 6% sales commission ($0.42) on each disc sold.
McGee Corporation offers Gruden $4.95 per disc for 5,570 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 $34,340 to $38,930 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
PLEASE DOUBLE CHECK, SEE WHAT I'M DOING WRONG?
Materials $ 9,180 Labor 24,990 Variable overhead 17,850 Fixed overhead 34,340 Total $86,360Explanation / Answer
Accept order reject order Net Income Increase/Decrease Sales 27571.5 38990 11418.5 Less Materials 3007.8 3007.8 0 Labor 8187.9 8187.9 0 Variable Overhead 5848.5 5848.5 0 Fixed overhead ( 38930-34340) 4590 0 -4590 Sales commission (6%) 0 21634.2 2339.4 19383.6 2339.4 -2250.6 Net Income 5937.3 19606.4 13669.1 If Mcgree Corpn acccepts the order , there would be a net income increase of $5937 If Mcgree Corpn rejects the order and sell it at old price of $ 7, there would be a net income increase of $ 13669
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