Question: Gruden Company produces golf discs which it normally sells to retailers for $7 each. Gruden also incurs 5% sales commission ($0.35) on each disc sold.The cost of manufacturing 20,000 golf discs is:Materials $10,000 Labor 30,000 Variable overhead 20,000 Fixed overhead 40,000
Gruden Company produces golf discs which it normally sells to retailers for $7 each. Gruden also incurs 5% sales commission ($0.35) on each disc sold.
The cost of manufacturing 20,000 golf discs is:
Materials$10,000Labor30,000Variable overhead20,000Fixed overhead40,000Total$100,000
McGee Corporation offers Gruden $4.80 per disc for 5,000 discs. McGee would sell the discs under its own brand name in foreign markets not yet served by Gruden. If Gruden accepts the offer, it will incur a one-time fixed cost of $6,000 due to the rental of an 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 assumptions underlie the decision made in part (b)?
