Question 2 Gruden Company produces golf discs which is normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is: Materials $10000 Labor 30,000 Variable overhead 20,000 Fixed overhead 40,000 Gruden also incurs 5% sales commission ($ 0.35) on each disc sold. McGee Corporation offers Gruden $4.80 per disc for 5000 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 $40,000 to $46,000 due to the purchase of a new imprinting machine. No sales commission will result from the special order. Instructions (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)?
Question 2 Gruden Company produces golf discs which is normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is: Materials $10000 Labor 30,000 Variable overhead 20,000 Fixed overhead 40,000 Gruden also incurs 5% sales commission ($ 0.35) on each disc sold. McGee Corporation offers Gruden $4.80 per disc for 5000 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 $40,000 to $46,000 due to the purchase of a new imprinting machine. No sales commission will result from the special order. Instructions (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)?
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 3PA: Marcotti Cupcakes bakes and sells a basic cupcake for $1.25. The cost of producing 600,000 cupcakes...
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Transcribed Image Text:Question 2
Gruden Company produces golf discs which is normally sells to retailers for $7 each.
The cost of manufacturing 20,000 golf discs is:
Materials
$10000
Labor
30,000
Variable overhead
20,000
Fixed overhead
40,000
Gruden also incurs 5% sales commission ($ 0.35) on each disc sold.
McGee Corporation offers Gruden $4.80 per disc for 5000 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 $40,000 to $46,000
due to the purchase of a new imprinting machine. No sales commission will result
from the special order.
Instructions
(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)?
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