Gruden Company produces golf discs which it normally sells to retailers for $7 e

Question

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 23,600 golf discs is:

Gruden also incurs 7% sales commission ($0.49) on each disc sold.

McGee Corporation offers Gruden $4.88 per disc for 5,140 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 $48,144 to $52,714 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.

Materials $  12,744 Labor 36,344 Variable overhead 24,308 Fixed overhead 48,144 Total $121,540

Explanation / Answer

Incremental analysis :

Incremental revenue (5140*4.88) 25083.20 Incremental cost Direct material (12744/23600)*5140 2775.60 Direct labour (36344/23600)*5140 7915.60 Variable overhead (24308/23600)*5140 5294.20 Fixed overhead (52714-48144) 4570 Total incremental cost 20555.40 Incremental profit (loss) 4527.80

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