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 20,100 golf discs is:

Gruden also incurs 4% sales commission ($0.29) on each disc sold.

McGee Corporation offers Gruden $4.94 per disc for 5,020 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 $41,205 to $46,895 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 $  10,653 Labor 29,346 Variable overhead 20,100 Fixed overhead 41,205 Total $101,304

Explanation / Answer

Reject Order Accept Order Net Income Increase(Decrease) Revenues 0 24799 24799 Materials 0 2661 -2661 Labor 0 7329 -7329 Variable overhead 0 5020 -5020 Fixed overhead 0 5690 -5690 Sales commissions 0 0 0 Net income 0 4099 4099 Alternatievly expenses could be written with a minus sign 2 Gruden should accept the special order.

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