Question

Wildhorse 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

Wildhorse also incurs 5% sales commission ($0.35) on each disc sold.

McGee Corporation offers Wildhorse $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 Wildhorse. If Wildhorse 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		$		$		$
Materials
Labor
Variable overhead
Fixed overhead
Sales commissions
Net income		$		$		$

(b)

Should Wildhorse accept the special order?

Wildhorse should reject/accept the special order .

Answer 1

a)		Reject	Accept	Net Income
	Order	Order	Increase
			(Decrease)
	Revenues	169,400	192,440	23,040
	Materials	12,342	14,790	2,448
	Labor	36,542	43,790	7,248
	Variable overhead	26,894	32,228	5,334
	Fixed overhead	47,916	53,006	5,090
	Sales commissions	8,470	8,470	-
	Net income	37,236	40,156	2,920
B)	Wildhorse Should	Accept	The special order
	Note: Alternatively answer in part a) can also be solved in below presented manner
		Reject	Accept	Net Income
	Order	Order	Increase
			(Decrease)
	Revenues	-	23,040	23,040
	Materials	-	2,448	2,448
	Labor	-	7,248	7,248
	Variable overhead	-	5,334	5,334
	Fixed overhead	-	5,090	5,090
	Sales commissions	-	-	-
	Net income	-	2,920	2,920