Gruden Company produces golf discs which it normally sells to retailers for $7.08 each. The cost of manufacturing 22,600 golf discs is:
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Materials
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$11,074
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Labor
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32,092
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Variable overhead
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23,504
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Fixed overhead
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45,878
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Total
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$112,548
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Gruden also incurs 8% sales commission ($0.57) on each disc sold.
McGee Corporation offers Gruden $5 per disc for 5,100 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 $45,878 to $51,155 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
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Reject
Order
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Accept
Order
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Net Income
Increase
(Decrease)
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Revenues
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$
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$
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$
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Materials
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Labor
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Variable overhead
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Fixed overhead
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|
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|
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Sales commissions
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Net income
|
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$
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$
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$
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