Gadson 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 Gadson also incurs 5% sales commission ($0.35) on each disc sold.Johnson Corporation offers Gadson $4.80 per disc for 5,000 discs. Johnson would sell the discs under its own brand name in foreign markets not yet served by Gadson. If Gadson accepts the offer, its fixed overhead will increase from $40,000 to $46,000 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. RejectOrder AcceptOrder Net IncomeIncrease(Decrease) Revenues $ $ $ Materials Labor Variable overhead Fixed overhead Sales commissions Net income $ $ $ Should Gadson accept the special order?
Gadson Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is:
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Materials |
$ 10,000 |
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Labor |
30,000 |
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Variable |
20,000 |
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Fixed overhead |
40,000 |
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Total |
$100,000 |
Gadson also incurs 5% sales commission ($0.35) on each disc sold.
Johnson Corporation offers Gadson $4.80 per disc for 5,000 discs. Johnson would sell the discs under its own brand name in foreign markets not yet served by Gadson. If Gadson accepts the offer, its fixed overhead will increase from $40,000 to $46,000 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.
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Reject |
Accept |
Net Income |
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Revenues |
$ |
$ |
$ |
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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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Sales commissions |
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Net income |
$ |
$ |
$ |
Should Gadson accept the special order?
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