Question

Question 3

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 15,000 golf discs is:

Materials		$  6,750
Labor		21,000
Variable overhead		14,250
Fixed overhead		29,250
Total		$71,250

Gruden also incurs 4% sales commission ($0.28) on each disc sold.

McGee Corporation offers Gruden $4.80 per disc for 4,500 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 $29,250 to $33,750 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. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

	Reject order	Accept order	Net Income Increase ( decrease )
Revenues
Material
Labour
Variable overhead
Sales Commission
Net Income

b.Should Gruden accept the special order?

_________________

Answer 1

Answer
a
	Reject Order	Accept Order	Net Income Increase (Decrease)
Revenues	0	$        21,600	$                 21,600
Materials	0	-$          2,025	-$                   2,025
Labor	0	-$          6,300	-$                   6,300
Variable overhead	0	-$          4,275	-$                   4,275
Fixed overhead	0	-$          4,500	-$                   4,500
Sales commissions	0	$                -	$                         -
Net income	0	$          4,500	$                   4,500
b
Gruden should accept the special order .
Workings:
	Per unit	4500 units
Revenues	4.8	21600
Materials	0.45	2025
Labor	1.4	6300
Variable overhead	0.95	4275
Fixed overhead	4500	33750-29250

Working

6750/15000	=	0.45
21000/15000	=	1.4
14250/15000	=	0.95