Gruden Company produces golf discs which it normally sells to retailers for $6.87 each. The cost...
Question:
Gruden Company produces golf discs which it normally sells to retailers for $6.87 each. The cost of manufacturing 18,500 golf discs is: Materials $9,250, Labor 28,305, Variable overhead 18,500, Fixed overhead 44,800, for a Total of $92,500.
Gruden also incurs 6% sales commission ($0.41) on each disc sold. McGee Corporation offers Gruden $5 per disc for 5,800 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 $36,445 to $41,824 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
Prepare an incremental analysis for the special order.
Incremental Analysis:
Incremental analysis is a technique to evaluate different alternatives. In this method, the projects or assets are evaluated on the basis of cost differences between them. Any costs that do not change if either alternative is selected are ignored for the purpose of deciding which alternative to pursue.
Answer and Explanation: 1
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| Reject order | Accept order | Net income increase(decrease) | |
|---|---|---|---|
| Revenue | 0 | $29,000 | $29,000 |
| Material ($0.50) | 0 | 2,900 | 2,900 |
| Labour ($1.53) | 0 | 8,874 | 8,874 |
| Variable... |
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