Managerial Accounting: E26-3 Innova Company produces golf discs

Managerial Accounting
E26-3
Innova 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
Innova also incurs 5% sales commission ($0.35) on each disc sold. Mudd Corporation offers Innova $4.75 per disc for 5,000 discs. Mudd would sell the discs under its own brand name in foreign markets not yet served by Innova. If Innova 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.

Instructions
a. Complete the incremental analysis for the special order. (If an amount should be blank, enter a zero. All boxes must be filled to be correct. If amount decreases net income, use either a negative sign preceding the number eg -45 or parentheses eg (45). Enter all other amounts as positive amounts and subtract where necessary.)
b. Should Innova accept the special order?
c. What assumptions underlie the decision made in part (b)?
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