Exercise 21-2

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 19,400 golf discs is:

Materials $ 9,894 Labor 31,040 Variable overhead 19,400 Fixed overhead 37,830 Total $98,164

Gruden also incurs 5% sales commission ($0.36) on each disc sold. McGee Corporation offers Gruden $4.76 per disc for 5,550 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 $37,830 to $42,890 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 computations for per unit cost to 4 decimal places, e.g. 15.2500 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Reject Order AcceptOrder Net Income Increase(Decrease) Revenues $ $ $ Materials Labor Variable overhead Fixed overhead Sales commissions Net income $ $ $

(b) Should Gruden accept the special order?

Gruden should reject accept the special order .