Exercise 7-2 (Part Level Submission) (a) Exercise 7-2 (Part Level Submission) Gr

Question

Exercise 7-2 (Part Level Submission)

(a)

Exercise 7-2 (Part Level Submission)

Gruden Company produces golf discs which it normally sells to retailers for $7.08 each. The cost of manufacturing 22,600 golf discs is:
Materials $11,074 Labor 32,092 Variable overhead 23,504 Fixed overhead 45,878 Total $112,548

Gruden also incurs 8% sales commission ($0.57) on each disc sold.

   McGee Corporation offers Gruden $5 per disc for 5,100 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 $45,878 to $51,155 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

Explanation / Answer

Particulars Reject Order Accept Order Net Income Increase/(Decrease) Revenues            1,60,008.00 1,85,508.00                                 25,500.00 Direct Material               11,074.00       13,573.00                                  -2,499.00 Direct Labor               32,092.00       39,334.00                                  -7,242.00 Variable Manufacturing Cost               23,504.00       28,808.00                                  -5,304.00 Fixed Manufacturing Cost               45,878.00       51,155.00                                  -5,277.00 Sales Commissions               12,800.64       12,800.00                                            0.64 Net Income               34,659.36       39,838.00                                   5,178.64

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