Exercise 7-2

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 15,000 golf discs is:

Materials		$ 6,750
Labor		21,000
Variable overhead		14,250
Fixed overhead		29,250
Total		$71,250

Gruden also incurs 4% sales commission ($0.27) on each disc sold. McGee Corporation offers Gruden $4.75 per disc for 4,500 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 $29,250 to $33,750 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).)

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).) Reject Order Accept Order Net Income Increase (Decrease) Revenues Materials Labor Variable overhead Fixed overhead Sales commissions Net income Should Gruden accept the special order? Gruden should the special order