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 $6.99 each. The cost of manufacturing 22,000 golf discs is:
Materials $11,440 Labor 31,240 Variable overhead 21,560 Fixed overhead 43,560 Total $107,800

Gruden also incurs 5% sales commission ($0.35) on each disc sold.

   McGee Corporation offers Gruden $5 per disc for 5,000 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 $43,560 to $48,631 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

Explanation / Answer

Accept the order

Reject order Accept order Net increase (Decrease) Revenues(5500*5) $0 $27,500 $27,500 Materials(.52) $0 (2860) (2860) Labor(1.42) 0 (7810) (7810) Variable overhead(.98) 0 (5390) (5390) Fixed overhead 0 (5071) (5071) Sales commission 0 0 0 Net income 6,369 6,369

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