Kimmel, Accounting, 6e Help I System Announcements nment Exercise 20-2 Gruden Co

ID: 2517981 • Letter: K

Question

Kimmel, Accounting, 6e Help I System Announcements nment Exercise 20-2 Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 19,600 golf discs is: Materials Labor Variable overhead Fixed overhead Total 10,584 28,812 19,796 39,984 $99,176 Gruden also incurs 8% sales commission ($0.56) on each disc sold. McGee Corporation offers Gruden $4.77 per disc for 5,610 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 $39,984 to $46,134 due to the purchase of a new imprinting machine. No sales commission will result from the special order. Prepare an incremental analysis for the special order. (Round answers to o decimal places, e.g. 1250. Enter negative amounts using elther a negative sign preceding the number e.g. -45 or parentheses e.g.(45).) Reject Order Accept Order Net Income Increase (Decrease) Revenues I 2000-2018Johnwiley & Sons.Ine All Rights Reserved. A Division of Johnwley &Sons.lne;

Explanation / Answer

(a).

Reject order

Accept order

Net Income

Increase (Decrease)

Revenues

$26760

Materials

($3029)

Labor

($8247)

Variable overhead

($5666)

Fixed overhead

($6150)

Sales commision

Nil

Net income

$3668

Working Note;

1. Revenue ($4.77 * 5610) = $26759.7 or $26760

2. Materials ($10584 * 5610 / 19600) = $3029.4 or $3029

3. Labor ($28812 * 5610 / 19600) = $8246.7 or $8247

4. Variable overhead ($19796 * 5610 / 19600) = $5666.1 or $5666

5. Fixed overhead ($46134 – $39984) = $6150

(b).

Gruden should accept the special order.

Explanation;

As per calculation in part (a) it is clear that special order will result into an increase of $3668 in net income hence Gruden should accept this special order.