Use incremental analysis for special-order decision . (LO 2), AN Gruden Company
ID: 2603913 • Letter: U
Question
Use incremental analysis for special-order decision.
(LO 2), AN
Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is:
Gruden also incurs 5% sales commission ($0.35) on each disc sold.
McGee Corporation offers Gruden $4.80 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 $40,000 to $46,000 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
Instructions
(a)
Prepare an incremental analysis for the special order.
Materials $ 10,000 Labor 30,000 Variable overhead 20,000 Fixed overhead 40,000 Total $100,000Explanation / Answer
McGee order (5000 units)
Incremental order
particulars Regular sale(total 20000 discs)
McGee order (5000 units)
Incremental order
Total Sales 140000 24000 Price per unit = 7 Price per unit = 4.8 No of units = 20,000 No of units = 5,000 Variable costs 60000 15000 20000 * 3 5000 * 3 Fixed costs 40000 6000 46000 - 40000 Sales commission 7000 0.35 * 20000 Profit $33,000 $3,000 Profit/unit 1.65 0.6Related Questions
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