Gruner Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is:
|
Materials |
10,000 |
0.50 |
|
Labor |
30,000 |
1.50 |
|
Variable overhead |
20,000 |
1.00 |
|
Fixed overhead |
40,000 |
2.00 |
|
Total |
100,000 |
5.00 |
Gruner also incurs 5% sales commission ($0.35) on each disc sold.
Travis Corporation offers Gruner $4.75 per disc for 5,000 discs.
Travis would sell the discs under its own brand name in foreign markets not yet served by Gruner. If Gruner accepts the offer, its fixed overhead will increase from $40,000 to $45,000 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
Requirements:
1. Prepare an incremental analysis for the special order. (If answer is zero, please enter 0. Do not leave any fields blank. If amount decreases the income, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Enter all amounts in columns “”Reject Order”” and “”Accept Order”” as positive amounts and subtract where necessary.)
2. Should Gruner accept the special order?
3. What assumptions underlie the decision made in part B?