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Exercise 7-2 (Part Level Submission)

Gruden Company produces golf discs which it normally sells to retailers for $7.04 each. The cost of manufacturing 17,900 golf discs is:

Materials		$9,129
Labor		25,418
Variable overhead		18,974
Fixed overhead		35,084
Total		$88,605

Gruden also incurs 4% sales commission ($0.28) on each disc sold.

McGee Corporation offers Gruden $5 per disc for 5,700 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 $35,084 to $39,695 due to the purchase of a new imprinting machine. No sales commission will result from the special order.

(a)

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 Order	Accept Order	Net Income Increase (Decrease)
Revenues	$[removed]	$[removed]	$[removed]
Materials	[removed]	[removed]	[removed]
Labor	[removed]	[removed]	[removed]
Variable overhead	[removed]	[removed]	[removed]
Fixed overhead	[removed]	[removed]	[removed]
Sales commissions	[removed]	[removed]	[removed]
Net income	$[removed]	$[removed]	$[removed] [removed]

Exercise 7-5 (Part Level Submission)

Schopp Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 50% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are $3.72 and $4.80, respectively. Normal production is 33,300 table lamps per year.
A supplier offers to make the lamp shades at a price of $13.30 per unit. If Schopp Inc. accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but the $44,330 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products.

(a)

Prepare the incremental analysis for the decision to make or buy the lamp shades. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

	Make	Buy	Net Income Increase (Decrease)
Direct materials	$[removed]	$[removed]	$[removed]
Direct labor	[removed]	[removed]	[removed]
Variable overhead costs	[removed]	[removed]	[removed]
Fixed manufacturing costs	[removed]	[removed]	[removed]
Purchase price	[removed]	[removed]	[removed]
Total annual cost	$[removed]	$[removed]	$[removed]

Problem 7-1A (Part Level Submission)

ShurShot Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 80% of plant capacity and producing 118,800 units.

		Amount
Sales		$4,633,200
Cost of goods sold		3,588,256
Selling and administrative expenses		441,936
Net income		$603,008

Fixed costs for the period were cost of goods sold $1,079,200, and selling and administrative expenses $220,968.

In July, normally a slack manufacturing month, ShurShot Sports receives a special order for 11,000 basketballs at $29 each from the Greek Basketball Association (GBA). Acceptance of the order would increase variable selling and administrative expenses $0.49 per unit because of shipping costs but would not increase fixed costs and expenses.

(a)

Prepare an incremental analysis for the special order. (Round all per unit computations to 2 decimal places, e.g. 15.25. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

	Reject Order	Accept Order	Net Income Increase (Decrease)
Revenues	$[removed]	$[removed]	$[removed]
Cost of goods sold	[removed]	[removed]	[removed]
Selling and administrative expenses	[removed]	[removed]	[removed]
Net income	$[removed]	$[removed]	$[removed]