Gruden company produces golf discs which it normally sells to retailers for $7 each. the cost of manufacturing 23,600 golf discs is:

materials $ 12,036
labor 35,400
variable overhead 23,128
fixed overhead 47,200
total $117,764

gruden also incurs 8% sales commission ($0.58) on each disc sold.

mcgee corporation offers gruden $4.91 per disc for 4,930 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 $47,200 to $53,700 due to the purchase of a new imprinting machine. no sales commission will result from the special order.

Increase in income= $2,965.6

Explanation:

Giving the following information:

Gruden Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 23,600 golf discs is:

Materials $ 12,036

Labor 35,400

Variable overhead 23,128

Fixed overhead 47,200

Total $117,764

McGee Corporation offers Gruden $4.91 per disc for 4,930 discs. If Gruden accepts the offer, its fixed overhead will increase from $47,200 to $53,700 due to the purchase of a new imprinting machine.

Total variable cost= (12,036 + 35,400 + 23,128)= 70,564

Unitary variable cost= 70,564/23,600= $2.99

Increase in fixed costs= $6,500

Increase in income= (4930*4.91) - (4930*2.99) - 6500= $2,965.6