Question

Wildhorse Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 24,200 golf discs is:
Materials $ 12,342
Labor 36,542
Variable overhead 25,894
Fixed overhead 47,916
Total $122,694
Wildhorse also incurs 5% sales commission ($0.35) on each disc sold.
McGee Corporation offers Wildhorse $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 Wildhorse. If Wildhorse accepts the offer, its fixed overhead will increase from $47,916 to $53,006 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 $ $ $
Materials
Labor
Variable overhead
Fixed overhead
Sales commissions
Net income $ $ $
(b) Should Wildhorse accept the special order?
Wildhorse should
reject/accept
the special order .

Answer 1

Answer:

Wildhorse Company

Incremental Analysis for the special order:

Sales Revenue (4,800 * $4.80)    $23,040

Variable cost (4,800 * $3.09)          14,832

Contribution margin                       $8,208

Fixed overhead increase                 5,090

Net Income                                       $3,118

b) Wildhorse should accept the special order.

Explanation:

a) Data and Calculations:

Materials                $ 12,342

Labor                        36,542

Variable overhead  25,894

Total variable cost $74,778

Unit variable cost $3.09 ($74,778/24,200)

Fixed overhead        47,916

Total                     $122,694

Units produced = 24,200

Selling price per unit = $7

Additional cost:

Sales commission = $0.35 per disc

Special order for 4,800 discs at $4.80

Increase in fixed overhead $5,090 ($53,006 - $47,916)