Exercise 7-2 Founder Company produces golf discs which it normally sells to reta

Question

Exercise 7-2 Founder Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 23,600 golf discs is: Materials Labor Variable overhead Fixed overhead Total $ 12,744 36,344 24,308 48,144 $121,540 Flounder also incurs 7% sales commission ($0.49) on each disc sold. McGee Corporation offers Flounder $4.88 per disc for 5,140 discs. McGee would sell the discs under its own brand name in foreign markets $48,144 to 552,714 due to the purchase of a new imprinting machine. No sales commission will resuit from the special order. Prepare an incremental analysis for the special order. (Round answers to o decimal places, e.g. 1250. f amount decreases rentheses e.g. (45)) Reject Order Accept Order Net Income Increase (Decrease) Re Mater Labor Variable overheatd Type here to search

Explanation / Answer

a Reject order Accept order Net Income Effect Revenues 0 25083 25083 Materials 0 2776 2776 Labor 0 7916 7916 Variable OverHead 0 5294 5294 Fixed Overhead 0 4570 4570 Sales Comission 0 0 0 Net Income 0 4528 4528 4.88*5140 = 25083 Material         12744/23600= .54 Labor               36344/23600=1.54 Variable overhead 24308/23600=1.03 Fixed Overhead (52714-48144) = 4570 b) As shown in the incremental analysis, Flounder should accept the special order because incremental revenue exceeds incremental expenses by $4,528.

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