AE7-2 (a,b) Gruner Company produces golf discs which it normally sells to retail
ID: 2348206 • Letter: A
Question
AE7-2 (a,b)
Gruner Company produces golf discs which it normally sells to retailers for $6.88 each. The cost of manufacturing 22,700 golf discs is:
Materials $10,896
Labor 33,369
Variable overhead 21,792
Fixed overhead 45,400
Total $111,457
Gruner also incurs 6% sales commission ($0.41) on each disc sold.
Travis Corporation offers Gruner $4.84 per disc for 5,300 discs. Travis would sell the discs under its own brand name in foreign markets not yet served by Gruner. If Gruner accepts the offer, its fixed overhead will increase from $45,400 to $50,233 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
Prepare an incremental analysis for the special order. (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Enter all amounts in columns "Reject Order" and "Accept Order" as positive amounts and subtract where necessary.)
Reject Order Accept Order Net Income Effect
Revenues $ $ $
Materials
Labor
Variable overhead
Fixed Overhead
Sales commission
Net income $ $ $
Should Gruner accept the special order?
Yes or No
Explanation / Answer
Reject
Accept
Net Income Effect
Revenue
0
25652
25652
Materials
0
2544
-2544
Labor
0
7791
-7791
Variable Overhead
0
5088
-5088
Fixed Overhead
0
4833
-4833
Sales Commission
0
0
0
Net Income
0
5396
5396
Yes – accept the order
Reject
Accept
Net Income Effect
Revenue
0
25652
25652
Materials
0
2544
-2544
Labor
0
7791
-7791
Variable Overhead
0
5088
-5088
Fixed Overhead
0
4833
-4833
Sales Commission
0
0
0
Net Income
0
5396
5396
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