I need help with the following problem: Exercise 7-2 Gruden Company produces gol

Question

I need help with the following problem:

Exercise 7-2 Gruden Company produces golf discs which it normally sells to retailers for 57 each. The cost of manufacturing 24,200 golf discs is: Gruden also incurs 5% sales commission ($0.35) on each disc sold. McGee Corporation offers Gruden $4.77 per disc for 4,820 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 $47,916 to $53,006 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).) Should Gruden accept the special order? Gruden should the special order.

Explanation / Answer

(a) Preparation of incremental analysis for the special order.

(b) Since, Net income is decrease by $ 14,212 if Gruden company accept offer of McGee corporation.Therefore, Gruden should Reject the special order.

Particulars Reject order Accept order Net income (increase / Decrease) Revenues 24,200 x 7 $ 169,400 (19,380 x 7) + (4,820 x 4.77) $ 158,651 - $ 10,749 Less: Material - 12,342 - 12,342 0 Labour - 36,542 - 36,542 0 Variable overhead - 25,894 - 25,894 0 Fixed overhead - 47,916 - 53,066 - 5,150 Sales Commission 24,200 x 0.35 - 8,470 19,380 x 0.35 - 6,783 1,687 Net income $ 38,236 $ 24,024 $ 14,212

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