Gruden Company produces golf discs which it normally sells to retailers for $7.1
ID: 2466078 • Letter: G
Question
Gruden Company produces golf discs which it normally sells to retailers for $7.14 each. The cost of manufacturing 21,100 golf discs is:
Gruden also incurs 5% sales commission ($0.36) on each disc sold.
McGee Corporation offers Gruden $5 per disc for 5,100 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 $42,622 to $48,387 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
And should Gurden accept the offer?
Materials $10,761 Labor 30,173 Variable overhead 23,210 Fixed overhead 42,622 Total $106,766Explanation / Answer
Accept Order
Particulars
Reject Order
Existing Sales
New Order
Total
Sales In Units
21,100
21,100
5,100
26,200
Sales Price
7.14
7.14
5.00
Revenues
150,654
150,654
25,500
176,154
Materials
10,761
10,761
2,601
13,362
Labor
30,173
30,173
7,293
37,466
Variable Overhead
23,210
23,210
5,610
28,820
Fixed Over Head
42,622
42,622
5,765
48,387
Sales Commission
7,596
7,596
Net Income
36,292
36,292
4,231
40,523
New Order :
Material Cost=10,761/21,100 x 5,100=$25,500
Labor: 30,173/21,100 x 5,100=$2,601
Variable Overhead=$23,210/21,100 x 5,100=$5,610
Fixed Over Head= $48,387-$42,622=$5,765
Particulars
Reject Order
Accept Order
Net Income Increase(decrease)
Revenues
150,654
176,154
25,500
Materials
10,761
13,362
2,601
Labor
30,173
37,466
7,293
Variable Overhead
23,210
28,820
5,610
Fixed Over Head
42,622
48,387
5,765
Sales Commission
7,596
-
(7,596)
Net Income
36,292
40,523
4,231
As there is increase in net income company should accept the order
Accept Order
Particulars
Reject Order
Existing Sales
New Order
Total
Sales In Units
21,100
21,100
5,100
26,200
Sales Price
7.14
7.14
5.00
Revenues
150,654
150,654
25,500
176,154
Materials
10,761
10,761
2,601
13,362
Labor
30,173
30,173
7,293
37,466
Variable Overhead
23,210
23,210
5,610
28,820
Fixed Over Head
42,622
42,622
5,765
48,387
Sales Commission
7,596
7,596
Net Income
36,292
36,292
4,231
40,523
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