Question

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 17,800 golf discs is:

Materials		$  8,366
Labor		25,988
Variable overhead		17,266
Fixed overhead		35,600
Total		$87,220

Gruden also incurs 7% sales commission ($0.48) on each disc sold.

McGee Corporation offers Gruden $4.81 per disc for 5,910 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 $35,600 to $40,250 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. (Round answers to 0 decimal places, e.g. 1250. 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 a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places
Materials		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places
Labor		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places
Variable overhead		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places
Fixed overhead		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places
Sales commissions		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places		enter a dollar amount rounded to 0 decimal places
Net income		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places

(b)

Should Gruden accept the special order?

Gruden should select an optionrejectaccept acceptreject the special order .

Answer 1

Prepare an incremental analysis for the special order. (Round answers to 0 decimal places, e.g. 1250. 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		0		28427		28427
Materials		0		-2778		-2778
Labor		0		-8629		-8629
Variable overhead		0		-5733		-5733
Fixed overhead		0		-4650		-4650
Sales commissions		0		0		0
Net income		0		6637		6637

Gruden should accept the special order .