This is just one question so please help me figure it out! Thanks!! Gruden Compa
ID: 2510563 • Letter: T
Question
This is just one question so please help me figure it out! Thanks!!
Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,100 golf discs is: Materials Labor Variable overhead Fixed overhead Total 10,653 29,346 20,100 41,205 $101,30 Gruden also incurs 4% sales commission ($0.29) on each disc sold McGee Corporation offers Gruden $4.94 per disc for 5,020 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 $41,205 to $46,895 due to the purchase of a new imprinting machine. No sales commission will result from the special orderExplanation / Answer
(a) Reject Order Accept Order Net Income Increase (Decrease) Revenues 1,40,700 $ 1,65,499 $ 24,799 Materials 10,653 13,314 $ 2,661 Labor 29,346 36,675 $ 7,329 Variable Overhead 20,100 25,120 $ 5,020 Fixed Overhead 41,205 46,895 $ 5,690 Sales commission 5,829 5,829 0 Net Income 33,567 37,666 $ 4,099 (b) Gruden Should accept the order. Working: i. Incremental revenue after accepting order = 5,020 x $ 4.94 = $ 24,799 Existing Revenues = 20,100 x $ 7.00 = 1,40,700 Total Revenue after accepting order $ 1,65,499 ii. Sales commission under existing sales = 20,100 x $ 0.29 = 5,829 Materials Labor Variable Overhead iii. Variable costs of existing manufacturing $ 10,653 $ 29,346 $ 20,100 Total Units manufactured 20,100 20,100 20,100 Variable cost per unit manufactured $ 0.53 $ 1.46 $ 1.00 iv. Variable costs after accepting order: Material (20100+5020) x $ 0.53 = $ 13,314 Labor (20100+5020) x $ 1.46 = $ 36,675 Variable overhead (20100+5020) x $ 1.00 = $ 25,120
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