Managerial Accounting: E7-2 Gruden Company produces golf discs

Managerial Accounting
Exercise 7-2
Gruden 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
Labor 30,000
Variable overhead 20,000
Fixed overhead 40,000
Total 100,000

Gruden also incurs 5% sales commission ($0.35) on each disc sold.
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, 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.

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).)
b. Should Gruden accept the special order?
c. What assumptions underlie the decision made in part b?
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