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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)?

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)?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Use incremental analysis for special-order decision. E7.18 (LO 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 Labour Variable overhead Fixed overhead Total $ 10,000 30,000 20,000 40,000 $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, it will incur a one-time fixed cost of $6,000 due to the rental of an 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)?
Transcribed Image Text:Use incremental analysis for special-order decision. E7.18 (LO 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 Labour Variable overhead Fixed overhead Total $ 10,000 30,000 20,000 40,000 $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, it will incur a one-time fixed cost of $6,000 due to the rental of an 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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