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 19,600 golf discs is:

Gruden also incurs 8% sales commission ($0.56) on each disc sold.

McGee Corporation offers Gruden $4.77 per disc for 5,610 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 $39,984 to $46,134 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. (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 $  10,584 Labor 28,812 Variable overhead 19,796 Fixed overhead 39,984 Total $99,176

Explanation / Answer

Workings

Ans 1 Details Reject Order Accept Order Net Income Increase (Decrease) Revenue=5610*4.77                             -   26759.7 26,759.70 Materials                             -                -3,029.40 -3,029.40 Labor                             -                -8,246.70 -8,246.70 Variable Overhead                             -                -5,666.10 -5,666.10 Increse in Fixed cost              -6,150.00 -6,150.00 Net     3,667.50 Ans 2 Accept the order

Workings

Per Unit Material             10,584.00                        0.54 Labor             28,812.00                        1.47 Variable Overhead             19,796.00                        1.01 Sales commisson             10,976.00                        0.56 Fixed Overhead             39,984.00 Sales Price Per Unit                        7.00 Sales            1,37,200.00

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