Exercise 20-2 Gruden Company produces golf discs which it normally sells to reta
ID: 2587125 • Letter: E
Question
Exercise 20-2 Gruden Company produces golf discs which it normally sells to retailers for $7.16 each. The cost of manufacturing 25,000 golf discs is: Materials Labor Variable overhead 25,250 Fixed overhead Total $12,250 36,500 51,000 $125,000 Gruden also incurs 8% sales commission ($0.57) on each disc sold. McGee Corporation offers Gruden $5 per disc or 5 500 discs. McGee would sell the discs under its own brand name in foreign mar e not et serve Guden. Gruden accepts the offer, its fixed overhead will increase from $51,000 to $56,487 due to the purchase of a new imprinting machine. No sales commission will result from the special order.Explanation / Answer
Reject order
Accept order
Net Income
Increase
(Decrease)
Revenues
25000*7.16 = 179000
25000*7.16 + 5500*5 = 206500
Materials
12250
(12250/25000)*30500 = 14945
Labor
36500
(36500/25000)*30500 = 44530
Variable overhead
25250
(25250/25000)*30500 = 30805
Fixed overhead
51000
56487
Sales commission
25000*0.57 = 14250
25000*0.57 = 14250
Net income
39750
45483
45483-39750 = 5733
Gruden should accept the special order.
Reject order
Accept order
Net Income
Increase
(Decrease)
Revenues
25000*7.16 = 179000
25000*7.16 + 5500*5 = 206500
Materials
12250
(12250/25000)*30500 = 14945
Labor
36500
(36500/25000)*30500 = 44530
Variable overhead
25250
(25250/25000)*30500 = 30805
Fixed overhead
51000
56487
Sales commission
25000*0.57 = 14250
25000*0.57 = 14250
Net income
39750
45483
45483-39750 = 5733
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