Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of...


Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 18,300 golf discs is:

Materials $9,333
Labor $26,718
Variable overhead $19,032
Fixed overhead $37,149
Total $92,232

Gruden also incurs 4% sales commission ($0.28) on each disc sold.

McGee Corporation offers Gruden $4.80 per disc for 5,600 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 $37,149 to $42,059 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.

Reject Order Accept Order Net Income Increase (Decrease)
Revenues $ $ $
Variable overhead
Fixed Overhead
Sales commissions
Net income $ $ $

b) Should Gruden accept the special order?

Incremental Analysis:

The incremental analysis aids the company in taking the decision to accept or reject a special price order. The relevant financial data is calculated for revenues and expenses for each of the alternative, and the net operating income or loss is calculated for accepting or rejecting special price order.

Answer and Explanation: 1

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A) The information of Gruden Company is given as under

  • The sales price per unit is $7 per unit to normal customers
  • The current operating capacity is...

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Incremental Analysis: Definition & Examples


Chapter 9 / Lesson 7

Learn about incremental analysis. Understand what incremental analysis is, learn the applications of incremental analysis, and see examples of incremental analysis.

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