Question - Gruden Company produces golf discs which it normally sells to retailers for $7.23 each. The cost of manufacturing 16,600 golf discs is:
Materials $8,466
Labor 24,070
Variable overhead 16,600
Fixed overhead 33,034
Total $82,170
Gruden also incurs 8% sales commission ($0.58) on each disc sold.
McGee Corporation offers Gruden $5 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 $33,034 to $38,872 due to the purchase of a new imprinting machine. No sales commission will result from the special order.
Prepare an incremental analysis for the special order.