Prepare an incremental analysis for the special order

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Question - Gruden Company produces golf discs, which it normally sells to retailers for $12 each. The cost of manufacturing 23,600 golf discs is:

Materials $10,620

Labour 29,500

Variable overhead 20,532

Fixed overhead 39,000

Total $99,652

Gruden also incurs 10% sales commission ($1.20) on each disc sold.

McGee Corporation offers Gruden $7.20 per disc for 5,900 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 $39,000 to $45,600 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.

b. Should Gruden accept the special order? Why or why not?

c. What assumption underlies the decision made in part (b)?

Reference no: EM132251759

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