Question:

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 19,900 golf discs is:

Materials	$10,945
Labor	29,651
Variable overhead	21,094
Fixed overhead	39,004
Total	$100,694

Gruden also incurs 5% sales commission ($0.35) on each disc sold.

McGee Corporation offers Gruden $4.77 per disc for 5,350 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 $39,004 to $45,374 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).)

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

(b)

Should Gruden accept the special order?

Gruden should

rejectaccept

the special order .QUESTION 2.

Moonbeam Company manufactures toasters. For the first 8 months of 2017, the company reported the following operating results while operating at 75% of plant capacity:

Sales (349,500 units)	$4,377,000
Cost of goods sold	2,591,000
Gross profit	1,786,000
Operating expenses	840,300
Net income	$945,700

Cost of goods sold was 77% variable and 23% fixed; operating expenses were 87% variable and 13% fixed. In September, Moonbeam Company receives a special order for 21,600 toasters at $8.12 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,100 of shipping costs but no increase in fixed costs. (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	Accept Order	Net Income Increase (Decrease)
Revenues	$	$	$
Cost of goods sold
Operating expenses
Net income	$	$	$

(b) Should Moonbeam Company accept the special order?

Moonbeam Company

should rejectshould accept

the special order.

QUESTION 3.

Pottery Ranch Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 69% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $3.89 and $5.00, respectively. Normal production is 26,600 curtain rods per year. A supplier offers to make a pair of finials at a price of $13.32 per unit. If Pottery Ranch accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $45,100 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare an incremental analysis to decide if Pottery Ranch should buy the finials.(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).)

Make	Buy	Net Income Increase (Decrease)
Direct materials	$	$	$
Direct labor
Variable overhead costs
Fixed manufacturing costs
Purchase price
Total annual cost	$	$	$

(b) Should Pottery Ranch buy the finials?

YesNo, Pottery Ranch should not buybuythe finials.

(c) Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $33,568?

NoYes

, income would

decreaseincrease

by $