E26-3 Shank 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 20,000 Variable overhead Fixed overhead 40,000 Total $100,000 Shank also incurs 5% sales commission ($0.35) on each disc sold. Mulligan Corporation offers Shank $4.75 per disc for 5,000 discs. Mulligan would sell the discs under its own brand name in foreign markets not yet served by Shank. If Shank 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) Prepare an incremental analysis for the special order. (b) Should Shank accept the special order? Why or why not?

E26-3 Shank Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is: Shank also incurs 5% sales commission ( $0.35 ) on each disc sold. Mulligan Corporation offers Shank $4.75 per disc for 5,000 discs. Mulligan would sell the discs under its own brand name in foreign markets not yet served by Shank. If Shank accept 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) Prepare an incremental analysis for the special order. (b) Should Shank accept the special order? Why or why not