a Open Show Work Gruden Company produces golf discs which it

(a)

Open Show Work

Gruden Company produces golf discs which it normally sells to retailers for $6.84 each. The cost of manufacturing 23,800 golf discs is: Materials $11,900 Labor 37,366 Variable overhead 23,086 Fixed overhead 48,314 Total $120,666 Gruden also incurs 5% sales commission ($0.34) on each disc sold.    McGee Corporation offers Gruden $5 per disc for 5,500 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 $48,314 to $54,064 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

Solution

Reject Order Accept Order Net Income Increase (Decrease) Reject Order Accept Order Revenue 162792 190292 27500 (23800*6.84) (23800*6.84)+(5500*5) Material 11900 14650 -2750 Given (23800+5500)*0.50 Labor 37366 46001 -8635 Given (23800+5500)*1.57 Variable OH 23086 28421 -5335 Given (23800+5500)*0.97 Fixed OH 48314 54604 -6290 Given Increases Sales Commission 8140 8140 0 6.84*5%*23600 No Increase Net Income 33986 38476 4490 Workings: Total PU Selling Price 162792 6.84 Material 11900 0.50 Labor 37366 1.57 Variable OH 23086 0.97 Fixed OH 48314 2.03 Sales Commission 8139.6 0.34 Special Offer 5500 Rate 5.00 Fixed OH Increase No Sales Commission