Question

Current Attempt in Progress Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 24,200 golf discs is: Materials $ 12,342 Labor 36,542 Variable overhead 25,894 Fixed overhead 47,916 Total $122,694 Gruden also incurs 5% sales commission ($0.35) on each disc sold. McGee Corporation offers Gruden $4.80 per disc for 4,800 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 $47,916 to $53,006 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 $enter revenues in dollars $enter revenues in dollars $enter revenues in dollars Materials enter materials in dollars enter materials in dollars enter materials in dollars Labor enter labor in dollars enter labor in dollars enter labor in dollars Variable overhead enter variable overhead in dollars enter variable overhead in dollars enter variable overhead in dollars Fixed overhead enter fixed overhead in dollars enter fixed overhead in dollars enter fixed overhead in dollars Sales commissions enter sales commissions in dollars enter sales commissions in dollars enter sales commissions in dollars Net income $enter net income in dollars $enter net income in dollars $enter net income in dollars (b) Should Gruden accept the special order? Gruden should select between accept and reject the special order .

Answer 1

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 24,200 golf discs is: Materials $ 12,342 Labor 36,542 Variable overhead 25,894 Fixed overhead 47,916 Total $122,694

So per unit cost of material = $ 12342 / 24200 = $ 0.51 per unit.

So per unit cost of labor =$ 36542 / 24200 = $ 1.51 per unit

For Variable overhead = $ 25894 / 24200 = $ 1.07  per unit

Further the additional fixed overhead = $ 53006 - 47916 = $ 5090.

Here the seperate columnar analysis is made for the existing and the special offer and a combined result is presented and analysis is made on it :

	Existing	Special order	Total
Units	24200	4800
Selling Price	7	4.8
Sales	$169400	$23040	$192440
Less : Variable cost
Material ( 12342 / 24200) =$ 0.51 per unit	$12342	$2448	$14790
Labor ( 36542 / 24200 ) = $ 1.51 per unit	$36542	$7248	$43790
Variable Overhead ( 25894 / 24200) = $ 1.07 per unit	$25894	$5136	$31030
Sales commission (5% on $ 169400 )	$8470	0	$8470
Total Variable expenses	$83248	$14832	$98080
Less : Fixed Overheads	$47916	$5090	$53006
Net Income	$35,332	$9,742	$45,074

Based on the schedule, if the special order is accepted then there is an increase in profit from $ 35332   to $ 45074 , increase of income by $ 9742,.

Thus Gruden should accept the special order .