Gruden Company produces golf discs which it normally sells to retailers for $7 e
ID: 2487785 • Letter: G
Question
Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 19,900 golf discs is:
Gruden also incurs 5% sales commission ($0.35) on each disc sold.
McGee Corporation offers Gruden $4.77 per disc for 5,350 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 $39,004 to $45,374 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
(a)
Prepare an incremental analysis for the special order. (Round computations for per unit cost to 4 decimal places, e.g. 15.2500 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)
(b)
Should Gruden accept the special order?
Gruden should
the special order .
Materials $ 10,945 Labor 29,651 Variable overhead 21,094 Fixed overhead 39,004 Total $100,694Explanation / Answer
Calculation of total variable cost per unit:-
Material $10,945
Labour $29,651
Variable Overhead $21,094
Total $61,690
No. of units 19,900
Variable cost per unit $3.1 per unit
SNo Particulars Reject the order(Amount in $) Accept the order(Amount in $) Incremental benefit(Amount in $) A Revenue 139,300 164,820(139300+5,350*4.77) 25,520 B Variable cost 61,690 67,040(61,690+5350*3.1) 5,350 C Fixed overhead 39,004 45,374 6,370 D Sales Commission 6,965(19,900*7*0.05) 6,965(19,900*7*0.05) - E Revenue 38,606 52,406 13,800Related Questions
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