Innova Company produces golf discs which it normally sells to retailers for $7 e
ID: 2389749 • Letter: I
Question
Innova Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is:Materials $10,000
Labor 30,000
Variable overhead 20,000
Fixed overhead 40,000
Total $100,000
Innova also incurs 5% sales commission ($0.35) on each disc sold.
Mudd Corporation offers Innova $4.75 per disc for 5,000 discs. Mudd would sell the discs under its own brand name in foreign markets not yet served by Innova. If Innova accepts the offer, its fixed overhead will increase from $50,000 to $55,000 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
Complete the incremental analysis for the special order. (If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign in front of the number, e.g. -45 or parenthesis, e.g. (45). Enter all other numbers as positive and subtract as necessary.)
Reject Order Accept Order Net Income Increase(Decrease)
____________________________________________________________________
Revenues $ $ $
Materials
Labor
Variable overhead
Fixed Overhead
Sales commission
Net income $
$
$
Should Innova accept the special order?
NoYes
Explanation / Answer
Reject order
Accept Order
Net Income Increase/(Decrease)
Revenue
0
23,750
23,750
Material
0
(2,500)
(2,500)
Labor
0
(7,500)
(7,500)
Variable OH
0
(5,000)
(5,000)
Fixed OH
0
(5,000)
(5,000)
Sales Commission
0
0
0
Net Income
0
3,750
3,750
They should accept the order.
Reject order
Accept Order
Net Income Increase/(Decrease)
Revenue
0
23,750
23,750
Material
0
(2,500)
(2,500)
Labor
0
(7,500)
(7,500)
Variable OH
0
(5,000)
(5,000)
Fixed OH
0
(5,000)
(5,000)
Sales Commission
0
0
0
Net Income
0
3,750
3,750