Exercise 20-2 Prepare an incremental analysis for the special order. (Enter nega

Question

Exercise 20-2

Prepare an incremental analysis for the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Exercise 20-2

Gruden Company produces golf discs which it normally sells to retailers for $7.24 each. The cost of manufacturing 18,600 golf discs is:
Materials $10,044 Labor 28,086 Variable overhead 19,902 Fixed overhead 36,642 Total $94,674

Gruden also incurs 5% sales commission ($0.36) on each disc sold.

McGee Corporation offers Gruden $5 per disc for 5,300 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 $36,642 to $43,051 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

Explanation / Answer

Gruden Company units produced                   18,600 Cost Details Unit Cost Total Cost Materials 0.54 $10,044 Labor                  1.51 28,086 Variable overhead                  1.07 19,902 Fixed overhead 36,642 Total $94,674 Incremental Beneefit Analysis Reject Accept Net Income Order Order Increase (Decrease) Revenues 0    26,500.00 26,500.00 Materials 0      2,862.00 (2,862.00) Labor 0      8,003.00 (8,003.00) Variable overhead 0      5,671.00 (5,671.00) Fixed overhead 0      6,409.00 (6,409.00) Sales commissions 0      1,908.00 (1,908.00) Net income 0    1,647.00 So incremental net income=                      1,647

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