Gruden Company produces golf discs which it normally sells to retailers for $6.9

Question

Gruden Company produces golf discs which it normally sells to retailers for $6.94 each. The cost of manufacturing 22,000 golf discs is:

Gruden also incurs 7% sales commission ($0.49) on each disc sold.

McGee Corporation offers Gruden $5 per disc for 4,800 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 $42,900 to $49,217 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. FILL IN THE BELOW CHART (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Fill IN THE BELOW CHART

Materials $12,100 Labor 32,560 Variable overhead 22,880 Fixed overhead 42,900 Total $110,440

Explanation / Answer

Offer should be accepted because incremental revenue exceeds the incremental expenses by $2947

4800 Units Per Unit   Reject Order($) Accept Order($) Net Income($) Increase   (Decrease) Revenues ($5) $5 0 24000 24000 Materials $0.55 0 -2640 -2640 Labor $1.48 0 -7104 -7104 Variable overhead $1.04 0 -4992 -4992 Fixed overhead ($49217-$42900) 0 -6317 -6317 Sales commissions 0 0 0 0 Net income 0 2947 2947

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