Question

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 22,200 golf discs is:

Materials		$  11,100
Labor		33,966
Variable overhead		24,198
Fixed overhead		45,066
Total		$114,330

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

McGee Corporation offers Gruden $4.90 per disc for 4,700 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 $45,066 to $50,726 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 Gruden accept the special order?

Gruden should rejectaccept the special order .

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Answer 1