Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is:
Materials $10,000
Labor 30,000
Variable overhead 20,000
Fixed overhead 40,000
Total $100,000

Gruden also incurs 4% sales commission ($0.28) on each disc sold. McGee Corporation offers Gruden $4.80 per disc for 4,800 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 $39,794 to $44,824 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

Prepare an incremental analysis for the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Reject Accept Order Net Income
Order Increase
(Decrease)

Revenues $ $ $
Materials
Labor
Variable overhead
Fixed overhead
Sales commissions
Net income $ $ $

The Relevant cost are only the cost or incremental costs as a results of the order. To Calculate variable costs per unit we used the volume of 20,000 golf disc and its total costs.

Fixed Costs increases as a result of accepting the order which means the difference in fixed costs is an incremental cost.

marvineetesh3 marvineetesh3 · Answer 2 · 2022-03-17T15:19:27+01:00

Gruden Company should tolerate or accept the order as it has a profit of $3,610, the computation is shown in the image below.

What is incremental analysis?

Incremental analysis is a problem-solving method that utilizes accounting information in decision-making.

Incremental research can determine the potential results of one choice resembled some other.

Analysis samples contain only appropriate costs, and these costs are normally shattered into variable costs and fixed costs.

In the given information,

The Applicable cost is just the cost or cumulative costs as an effect of the command. To estimate variable costs per unit, we employed the volume of 20,000 golf discs and their total costs.

Fixed Costs rise as a result of receiving the order, which represents the difference in fixed costs is an incremental cost.

Therefore, at a profit of $3,610, the company should accept the given offer.

To learn more about the incremental analysis, refer to:

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