Question

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,200 golf discs is:

Materials$  9,090Labor29,290Variable overhead19,392Fixed overhead39,794Total$97,566

Gruden also incurs 8% sales commission ($0.56) on each disc sold.

McGee Corporation offers Gruden $4.80 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 $39,794 to $45,304 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).)

		enter revenues in dollars		enter revenues in dollars		enter revenues in dollars
		enter materials in dollars		enter materials in dollars		enter materials in dollars
		enter labor in dollars		enter labor in dollars		enter labor in dollars
		enter variable overhead in dollars		enter variable overhead in dollars		enter variable overhead in dollars
		enter fixed overhead in dollars		enter fixed overhead in dollars		enter fixed overhead in dollars
		enter sales commissions in dollars		enter sales commissions in dollars		enter sales commissions in dollars
		enter net income in dollars		enter net income in dollars		enter net income in dollars

(b)

Should Gruden accept the special order?

select between accept and reject                                                          rejectaccept

Answer 1

Calculation per unit cost of Materials, Labor and Variable overheads
		Materials	Labor	Variable Overheads
(a)	Cost	$ 9,090.00	$ 29,290.00	$              19,392.00
(b)	Number of golf discs	20200	20200	20200
(c)	Per unit cost [(a)/(b)]	$         0.45	$            1.45	$                        0.96

Calculation of cost of materials, cost of labor and variable overheads for special order
Particulars	$ Per unit	Number of Units	Total =($ per unit*Number of units)
Materials	$         0.45	4700	$                      2,115
Labor	$         1.45	4700	$                      6,815
Variable Overheads	$         0.96	4700	$                      4,512
Sales	$ 4.80	4700	$                    22,560

Incremental Analysis for special order
Particulars	Reject Order	Accept Order	Net income Increase or Decrease
Revenue	0	$     22,560	$   22,560
Materials	0	$       2,115	$     2,115
Labor	0	$       6,815	$     6,815
Variable Overheads	0	$       4,512	$     4,512
Fixed overheads	0	$       5,510	$     5,510
Sales commission	0	0	$            -
Net Income	0	$       3,608	$     3,608
There won't be any income or expense or gain or loss if special order has been rejected. There is no cost of sales commission in case of Special order
				Gruden should accept the special order