Exercise 12-2 Your answer is partially correct. Try again. Cheyenne Company prod

Question

Exercise 12-2 Your answer is partially correct. Try again. Cheyenne Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 17,000 golf discs is: Materials Labor Variable overhead Fixed overhead Total $9,180 24,990 17,850 34,340 $86,360 Cheyenne also incurs 6% sales commission ($0.42) on each disc sold. McGee Corporation offers Cheyenne $4.95 per disc for 5,570 discs. McGee would sell the discs under its own brand name in foreign markets not yet served by Cheyenne. If Cheyenne accepts the offer, its fixed overhead will increase from $34,340 to $38,930 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

Explanation / Answer

Solution a:

Solution b:

As there is increase in net operating income by $5,937.30, therefore Cheyenne should accept the special order.

Incremental Analysis for special Order Particulars Reject Special Order (Alt 1) Accept Special Order (Alt 2) Net Income Increase (Decrease) (Alt2) Details Amount Details Amount Sales 17000*$7 $119,000.00 (17000*$7 + 5570*$4.95) $146,571.50 $27,571.50 Variable Costs: Materials 17000*$0.54 $9,180.00 22570*$0.54 $12,187.80 $3,007.80 Labor 17000*$1.47 $24,990.00 22570*$1.47 $33,177.90 $8,187.90 Variable Overhead 17000*$1.05 $17,850.00 22570*$1.05 $23,698.50 $5,848.50 Sales Commission 17000*$0.42 $7,140.00 17000*$0.42 $7,140.00 $0.00 Total Variable Cost $59,160.00 $76,204.20 $17,044.20 Contribution Margin $59,840.00 $70,367.30 $10,527.30 Fixed Overhead $34,340.00 $38,930.00 $4,590.00 Net Income (Loss) $25,500.00 $31,437.30 $5,937.30

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.